The man leading an internal inquiry into the top US financial regulator will be grilled by politicians later today over its failure to uncover the alleged $50 billion Madoff fraud despite examining the investment group at least eight times in 16 years.

David Kotz, inspector general of the Securities and Exchange Commission (SEC), will face questions later today from the House of Representatives Financial Services Committee about how the Wall Street regulator missed the biggest alleged fraud in history.

The Wall Street Journal reported this morning that the SEC and other regulators, who had been tipped off by wary hedge funds, examined Bernard L. Madoff Investment Securities LLC at least eight times in 16 years and had in fact interviewed Mr Madoff at least twice.

The hearing comes as the role of America’s federally regulated banks in the scandal has come into question after it emerged that a number of victims of Mr Madoff’s alleged "Ponzi" scheme thought they had invested their money with an ordinary bank.

Two law firms in Florida, which are gathering claims from Madoff victims, are both representing a couple who say that they believed that they had invested about $1 million (£688,000) with the Westport National Bank, a regulated savings bank in Connecticut, rather than with Mr Madoff.

The Florida couple, whom lawyers declined to name, received a letter from the bank dated December 12, the day that Mr Madoff was charged with fraud, explaining: “You currently have a custodian agreement with Westport National Bank [...] you gave full discretionary authority to Bernard L Madoff Investment Securities.”

According to Craig Stein, an attorney with Stein & Pinsky in Boca Raton, Florida, the couple had no inkling of their exposure to Mr Madoff and received annual statements from the bank that showed deductions for custodial and record-keeping fees that added up to 4 per cent a year, or $40,000 at the peak of their investment. Mr Stein said that his clients had been introduced, with other investors in Westport, by a “promoter”.

Westport National Bank insists that “the bank has not invested any of its own funds or the funds of its depositors with Madoff, and the bank has not advised any customer of anybody else to invest with Madoff”. The implication is that the investment must have gone via another route, therefore.

The Office of the Comptroller of the Currency, America's banking regulator, refused to be comment on whether it was questioning Westport or investigating whether US banks played a role in helping Mr Madoff to create what is described as the world's biggest fraud.

The two Florida law firms have also claimed that those eligible to join his fund needed to be far less rich than first believed. When the scandal came to light almost a month ago, it was thought that new clients had to be prepared to invest at least $10 million in order to qualify for their money to be managed by Mr Madoff.

However, according to Mr Stein and Adam Rabin, of McCabe Rabin, a law firm in West Palm Beach, Florida, investors were eligible with sums of about $100,000. Both attorneys also said that they had been approached by victims of modest means who had joined Mr Madoff's investment fund by pooling their savings.

Mr Madoff, 70, is alleged almost a month ago to have told his sons Mark and Andrew, who worked for him, that he was “finished” and that their investment firm was a giant Ponzi scheme. He has been charged with securities fraud and is under house arrest and is electronically tagged.

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