Bove: These banks most exposed to stock liquidity risk

Big banks... where's the money coming from? Dick Bove

Big investment banks like Goldman Sachs and Morgan Stanley are most at risk of liquidity challenges as markets sell off, Rafferty Capital's Dick Bove said Wednesday.

Earlier this week, Bove said liquidity, or the ability to keep cash flowing and match up buyers and sellers, is posing perhaps the biggest challenge ahead. If markets do not see a "buying surge," there will be nothing to stop a "massive move to the downside," he said.

Read More Dick Bove: 'Massive move to the downside' looms due to liquidity issue

The banks most exposed to that risk are Goldman and Morgan Stanley, the vice president of equity research at Rafferty Capital Markets said.

"They're purely, if you will, associated with the market, as opposed to traditional lending, deposit gathering, et cetera," he told CNBC's "Squawk Box."

Small advisory firms like Evercore Partners and financial services outfits like Northern Trust are also at risk, he said.

Bove said he favors bank stocks like Bank of America, Citigroup and JPMorgan Chase. However, he advised investors to stay on the sidelines for the moment—even when it comes to these top picks.

Massive selling fueled by concerns over China's growth prospects has plunged all major U.S. averages into correction. The was down about 9.3 percent year to date as of Tuesday's close, tracking for its first negative year since 2011.

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"Unless someone can point to huge pool of funds which is ready to go to buy common stocks, how are bank stocks going to go up? How are any stocks going to go up?" he asked.

"My thought is at the present time, until you see a clear trend in terms of money flows coming in to stocks, you don't buy them."

—CNBC's Jeff Cox and Maneet Ahuja contributed to this story.

DISCLOSURE: Neither the analyst nor his family own shares of the stocks. Rafferty Capital does not own greater than a 1 percent share of the equities and does not provide investment banking services to the companies.