The world's biggest banks are eagerly eyeing up the Australian financial scene in the light of proposals to shake-up the sector which could give the green light to a wave of merger activity. Indeed speculation has intensified that HSBC Holdings may be tempted to beat the rush and make a move on ANZ, long thought to be its favoured target, before a major government report on the Australian financial sector is handed down next March. Analysts argue that ANZ, with a price tag of about A$13 billion (HK$79.42 billion), would be the perfect choice for HSBC, given its profitable and growing presence in the Asian markets. Other foreign banks too are thought to be circling, with Britain's Lloyds TSB and Holland's ABN-Amro both rumoured to be interested in buying something down under, and indeed National Australia Bank recently suggested that it could be a prime target. One Sydney-based analyst says: 'The shake-up certainly looks set to make it a lot easier for foreign banks to takeover an Australian bank - and it may not be confined to the most obvious predators. Bank of Scotland for example came out of nowhere to snap up BankWest.' The Wallis Inquiry, as it has become known, was set up by the government to carrying out a full-scale review of Australia's financial sector in a bid to make it more able to compete against other financial centres in Asia and to attract more overseas players to Australia. Federal Treasurer Peter Costello, who launched the inquiry, says: 'The inquiry will undertake a stock-take of financial regulation, seek to establish a common regulatory framework for overlapping financial products and propose ways and means for dealing constructively with further financial innovation.' The most wide-ranging inquiry since the Campbell Report in 1981, the Wallis committee - which is headed by respected businessman Stan Wallis - has been charged specifically with solving the thorny question of what to do about mergers and takeovers in the financial sector. These are currently prevented between Australia's four biggest banks and its two leading life assurance groups under the so-called 'six pillars' policy introduced by former Prime Minister Paul Keating, but all four of the banks - ANZ, Westpac, National Australia Bank and Commonwealth Bank - have been lobbying hard and loud to get the existing restrictions scrapped. Indeed any foreign bank looking to join the party may face some fierce competition from Australian banks themselves for their prey. Managing director of National Australia Bank (NAB) Don Argus argues that Australian banks need to acquire 'critical mass' in domestic markets if they are to become big enough to compete internationally and few analysts doubt that it would waste little time in launching a bid for one of its rivals Westpac or ANZ if the rules allowed. One analyst said: 'NAB has made no secret of its desire to expand its business through acquisition and it has certainly got the money to be able to do it.' Westpac in its submission to the Wallis committee cited a report indicating that mergers between banks could lead to efficiency savings of up to $3.6 billion a year. The signs are that the banks' clamour is being heard - Mr Wallis himself recently declared: 'What we want in this sector is a more competitive outcome. It does not always follow that when you have four or five participants you necessarily get the right competitive outcome. 'There is no question that in Australia we have got an over-branched banking sector: there are some very large costs there at the moment.' Not every one is happy however, and critics argue a wave of bank mergers would not produce a more efficient lower cost landscape, they would simply concentrate economic power further. The Australian Competition and Consumer Commission recently hit out at NAB's stance, saying: 'The argument that Australians should bear the burden of anti-competitive structures at home because this may make some few institutions more competitive on the world stage is entirely unsatisfactory.' And regional bank, St George Bank, in which NAB has a stake, has argued: 'The globalisation argument from major banks is absolute nonsense - one of the reasons NAB wants to take over the bank is to take us out of the market. 'Consumer banking markets in Australia are local and domestic in nature, not global.' Where the big four banks are less united is on the issue of opening the door for foreign banks to come and play. ANZ, perhaps not altogether surprisingly, has warned the committee of the drawbacks of allowing foreign ownership in the finance sector, arguing in its submission that it can lead to a diminishing of major head office skills and management talent. Citing the example of New Zealand, in which all the banks are foreign-owned, ANZ says: 'Taken to its logical conclusion the end result must be a significant brain drain because the most talented management leaves to work in the head office of the overseas acquirer and because the opportunities for employment of allied professional services and new graduates are diminished.' Certainly there is no sign that the appeal of the Australian financial sector to overseas players is diminishing - in the past year the country has seen both Bank of Scotland and French insurance group AXA, with its takeover of life group National Mutual, enter the market for the first time and South Africa's Rand Merchant Bank try (but fail) to get a banking licence.