Investors should stay away from bank stocks, as the Senate’s financial regulation bill would shrink credit and curb bank revenue, says star bank analyst Meredith Whitney.

She warned about the bank crisis in 2007, well before most other experts. And Whitney has stuck to her bearish view on most bank stocks since then.

"Avoid financials at all costs, particularly in the banking sector," she recently told CNBC.

“Politicians have proven far worse than our worst expectations. It (the financial reform bill) could be very bad for banks."

Proposed credit card restrictions would be particularly onerous, depriving small businesses of financing, Whitney says.

One of the new rules would subject banks to individual state ceilings on credit card interest rates. Another would limit how much credit card issuers can charge businesses for accepting their cards.

"Some of these regulatory proposals are going to make it so difficult for everyone involved that you'll see, I think, at least another $1.3 trillion (of credit) sucked out of the system," she said.

"(The Senate is) jamming down last-minute regulations just to appear to be tough on banks."

Not everyone shares Whitney’s bearishness on banks.

Major money managers, including John Paulson, bought big chunks of Bank of America stock in the first quarter.

“The large banks were market leaders late last year and early this year before the baton was passed to the more distressed regional firms,” Anthony Polini, an analyst at Raymond James, told Bloomberg.