Vince Cable has delivered a report to financial regulators which claims Royal Bank of Scotland has profited from forcing good companies into insolvency.
The document has been compiled by Lawrence Tomlinson, entrepreneur-in-residence at the Department for Business, Innovation and Skills, and focuses its allegations on the Global Restructuring Group (GRG), RBS' turnaround division.
Tomlinson claims he has uncovered instances of the bank "unnecessarily engineering a default to move the business out of local management and into their turnaround divisions".
Small companies affected by the practice, the report says, have been hit by high fees and forced out of business allowing the bank to buy their assets cheaply for the benefits of its property arm. One business that submitted evidence to Tomlinson said it had paid £256,000 in fees to GRG.
Other examples include bank officials reducing the value of a company's assets from £5m to £1.6m allowing RBS to renegotiate loan terms and significantly increase margins.
While the report mainly concentrates on RBS, it also criticises Lloyds Banking Group for focusing on short-term gains at the expense of its business customers.
"The profit-making nature of GRG significantly undermines its position as a turnaround division, in which good businesses should be restructured and returned to normal banking," Tomlinson said. "The temptation to get hold of assets and take additional profit from these businesses to boost GRG’s balance sheet is clear.
"There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners. I look forward to seeing how RBS proposes to take forward the forensic investigation into this part of the bank.
"Without competition in the banking sector, these scandals will continue to come to light and ever more business will be hurt in the process. With RBS and Lloyds at the size they are at, smaller challenger banks will never be able to adequately compete to take their customers and drive true market forces.
"It is vital that RBS and Lloyds are made significantly smaller, removing conflicts of interest within the bank, and creating a number of smaller, purely retail/commercial banks."