In a medium bowl, whisk together the sweetened condensed milk, water, and milk until smooth.
Stir in the instant vanilla pudding mix and whisk until fully combined and slightly thickened.
Line the bottom of an 8×8 casserole dish with a single layer of vanilla wafers.
Thinly slice 4 to 6 bananas and arrange a layer of banana slices over the wafers.
Give the pudding mixture a quick stir and pour a layer over the bananas to cover them.
Repeat layers of wafers, banana slices, and pudding until the dish is filled, finishing with a top layer of vanilla wafers.
Cover the dish with plastic wrap and refrigerate overnight (about 8 hours) so the wafers soften and the layers set.
Top the chilled pudding with Cool Whip just before serving and optionally garnish with extra banana slices or crushed wafers.