Big banks don't need to split up if the "right regulations" are in place, says former Citigroup CEO Sand Weill.

The problem is that no one knows how restrictive the regulations are going to be, as regulators are still drafting the final rules.

"We still don't have any regulations. There's no Volcker Rule. Dodd-Frank isn't completed," he told CNBC. "Nobody knows what the rules are going to be. It's good to know where you're going. We, as a country, don't know where we're going in a lot of different places, but especially in the financial industry."

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Overly restrictive regulations that forbid or limit banks from taking risks would smother entrepreneurship and make investment banking ineffective.

If that happens, banks should consider breaking up, he stated.

But "we don't have to if we have the right regulations," he added.

"If we have regulations that preclude investment banking operating in a way that it can be constructive, then I think we should do something different and let them split up, if they figure that's the best way that they can provide their services."

A year ago, Weill said the large banks should be split up to separate their investment and commercial banking functions.

"What we should probably do," he told CNBC at the time, "is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that's not going to risk the taxpayer dollars, that's not too big to fail."

The situation has changed since then, he explained. "A lot of the things we talked about have happened and even gotten worse. Like for example, the attack on anybody who is called a banker."

Although good regulations can mitigate risks to taxpayers, banks cannot function properly and the United States will lose its economic world leadership if rules are too onerous.

"If the way the regulations that come down do not allow entrepreneurship and do not allow people in the financial industry to make mistakes, then I think, because of risking taxpayer money, that's going to make our financial industry completely ineffective," he noted.

Several Senators, including Elizabeth Warren, D-Mass., and John McCain, R-Ariz., have proposed bringing back a version of the Glass-Steagall Act, which separated investment and commercial banks. Congress enacted the Glass-Steagall Act in 1933 to separate traditional banks offering savings deposits from investment banks dealing in securities and other financial services. Many of the act's rules were repealed in 1999.

At least 18 states have introduced resolutions urging Congress to reinstate Glass-Steagall and break up the large banks, according to Politico.

"We on the state level have been looking for an Elizabeth Warren — someone to carry this banner for us," said Illinois State Rep. Mary Flowers, Politico reported.

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