Lawrence Tomlinson also claimed that many small firms were still facing “poor customer treatment” because the big banks have too much power.
Mr Tomlinson, who served as an “entrepreneur-in-residence” for Business Secretary Vince Cable, was speaking in response to a report from MPs about competition in SME (small and medium-sized enterprises) lending.
The Treasury Select Committee said that the financial regulator should set up an independent review of its compensation scheme for customers who were mis-sold complex hedging products, to ensure it does not favour banks.
The Financial Conduct Authority (FCA) agreed the terms of a scheme to compensate thousands of small companies that were mis-sold the products, known as interest rate swaps, in 2012, with nine banks including Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC.
But the scheme quickly attracted criticism because more than a third of the businesses were excluded from the scheme after they were deemed to be “financially sophisticated”.
Many of the firms that were allowed into the scheme were offered alternative hedging products by banks instead of cash compensation.
The products were meant to protect firms against rising interest rates, but when rates fell the companies had to pay extra charges, typically running to tens of thousands of pounds. They also faced hefty penalties to extricate themselves from the deals, which many said they were unaware of.
Mr Tomlinson, who made headlines in 2013 when he produced a report for the Government which contained scathing criticism of the way Royal Bank of Scotland treated some struggling small businesses, said: “Poor customer treatment has continued as borrowers have nowhere else to turn given the oligopoly of the big banks.
“As the Chancellor (George Osborne) has recognised, bank behaviour is a core concern of the electorate.
“It is not too late to take decisive action and I urge all political parties to give this full consideration when drafting their manifestos. It is a long-term solution which will generate a greater return to the Treasury than the immediate sale of the Government-backed banks.”
Mr Tomlinson believes the Government-supported banks should be broken up to increase competition.
A British Bankers Association spokesman said: “Banks have fully co-operated with the regulator’s review of the interest rate hedging products and have followed the process as agreed which has led to almost £1.8bn in redress being accepted so far.
“The review has been overseen by independent experts and the regulator to ensure that banks meet the stringent review requirements.
“There have been substantial changes to strengthen competition in the banking sector.”