The sovereign debt crises that nearly caused a break-up of the single currency in 2011/12 has generated mistrust among banks and caused an effective breakdown of cross-border bank investment flows as they hoarded capital at home.
But the ECB's asset quality review, an assessment of the balance sheets of more than 120 banks that is due to be completed next autumn, should bring transparency on the quality of banks' loans and other assets, bankers and regulators at the World Economic Forum in Davos said.
The initial increase in merger activity is expected to take place within single countries as weaker companies restructure and accept effective takeovers by domestic rivals, but bankers believe this will then spread to a pan-European level.
"The pre-conditions are there," Deutsche Bank CEO Anshu Jain said when asked whether the EU health checks on banks and the move towards banking union would bring cross-border deals.
However, Jain added that progress will not come overnight. "I am not predicting a wave (of deals)," he said.
Bankers say that the latest checks on capital and stress tests of banks' resilience to shocks must be rigorous, pointing to the 2011 tests that found no weaknesses among Spanish and Irish banks, even though the countries subsequently asked for bailouts of their banking sectors.
European Monetary Affairs Commissioner Olli Rehn said that banks are already preparing for the results of the stress tests by raising capital on the market, with about 80 billion euros ($109.5 billion) raised to strengthen banks over the past couple of years.
There is unlikely to be significant further consolidation in the Spanish banking sector, which has already shrunk from about 50 players at the start of the sovereign debt crisis to fewer than 10.
Italian banks, however, appear still to have some way to go as the likes of Banca Monte dei Paschi di Siena and Banco Popolare, the country's third and fourth-largest banks respectively, seek to raise more capital.
Mid-sized Italian banks are candidates for mergers, Bank of Italy Governor Ignazio Visco and the CEOs of Italy's two largest banks, UniCredit and IntesaSanpaolo, told Reuters in interviews in Davos.
"For sure, some (mid-level) banks will need some additional capital. It's possible to start to see consolidation at that level," UniCredit CEO Federico Ghizzoni said.
"It will be interesting to see what happens after the asset quality review, not only in Italy but also at the European level," he said, adding that he expects cross-border deals.
However, Giovanni Bossi, CEO of smaller Italian bank IFIS , cautioned against merging "two small weak players to create a larger weak one".
Some bankers said that consolidation would not be constrained within the euro zone because banks need to scale up to afford technological investment and cut costs.
One banker said he expected a consolidation wave among Swiss private banks as they move towards a system of automatic exchange of tax information with foreign authorities.
Another senior executive at a European bank said that the forthcoming banking union under ECB supervision will also bring M&A activity. "With time, there will be cross-border mergers," he said.