Banks have been behind the curve in terms of downsizing, with their employees paying for it now through a rash of furloughs, analyst Meredith Whitney told CNBC.
The industry has seen a recent spate of big layoff announcements, including 16,000 from Bank of America alone.
Though banks already have jettisoned about half a million workers since the beginning of the financial crisis in 2008, Whitney said more are to come as the shrinking big institutions struggle to compete.
"The banks have been overstaffed for a really long time. If you think about all of the other industries that have gotten more competitive, more profitable, the banking sector and the insurance sector have been laggards behind it, and they employ a lot of people," Whitney said on "Closing Bell."
New banking regulations, particularly the Dodd-Frank financial reform bill, have seen the banks shrinking in order to avoid the too-big-to-fail syndrome that caused the industry to push the country into recession.
"Interesting for Goldman (Sachs) — they're cutting all of their highest-paid people," Whitney said. "The industry is as bad as I've seen it. So it's certainly not a great time to be on Wall Street."
The news isn't all bad, though.
Whitney said the newest Federal Reserve quantitative easingprogram in which the central bank will buy $40 billion a month of mortgage-backed securities will help housing-sensitive businesses like Wells Fargo and the mortgage service industry.
"Wells has a very large mortgage portfolio that it can ride up," she said. "A lot of these mortgage servicers look very good. I'm most interested in the financials in terms of around the edge. As the banks have to get smaller...who benefits? Because clearly there are winners in the banks getting smaller. There are a lot of interesting names there."
In another matter, Whitney again defended her call on municipal bond defaults, even though they have yet to happen on near the scale she predicted during an appearance on "60 Minutes" in late 2010.
During a recent CNBC appearance, Whitney critic Alexandra Lebenthal, head of Lebenthal and Co. in New York, said munis remain a safe investment.
"Her position is a riskier position than mine," Whitney said. "But time will tell."