The Financial Services Authority (FSA) says banks mis-sold specialist insurance on loans known as interest rate swaps to thousands of small businesses.
The FSA's Martin Wheatley told the Today programme that these are complex products that should not have been in the hands of small businesses.
"Some of these small business have gone out of business," he said.
"A large number of SMEs (small and medium enterprises) are finding themselves in financial distress because of the products they bought to protect themselves."
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