Bank of Italy board meets to assess Monte Paschi crisis
* Central bank board to rule on request for state loans
* Prosecutors reported to suspect fraud, corruption
* Bank of Italy under pressure over role as supervisor
By Gavin Jones
ROME, Jan 26 (Reuters) - The four-member board of the Bank of Italy was meeting on Saturday to consider the position of scandal-hit bank Monte dei Paschi di Siena and decide whether to authorise its request for 3.9 billion euros ($5.3 billion) of state loans.
Italy's third-largest bank this week revealed loss-making derivatives trades that could cost it about 720 million euros, causing heavy losses in its shares and prompting questions about how the risky deals could have been hidden from regulators.
This issue has shot to the centre of the campaign for next month's national election and politicians have blamed the Bank of Italy, which was led by current European Central Bank president Mario Draghi at the time of the deals, for failing to spot the problem.
At Saturday's meeting chaired by current Bank of Italy (BOI)Governor Ignazio Visco, the board will consider whether Monte Paschi meets the requirements of current and future stability necessary to receive the state loans it has requested.
Visco told reporters on Friday that "there is no question that the bank is stable."
The meeting began on Saturday morning, a BOI spokeswoman said, and the central bank is expected to issue a statement when it ends.
At a stormy meeting in Monte Paschi's Tuscan headquarters of Siena on Friday, its shareholders approved two capital increases of up to 6.5 billion euros to be carried out if needed in the next five years, which are a condition of the state bailout.
Outgoing Prime Minister Mario Monti said late on Friday he considered it a "remote hypothesis" that the bank would end up needing to be nationalised.
Visco attended the World Economic Forum in Davos on Friday where he gave a spate of interviews to try to deflect accusations that the BOI had not done its job properly.
"It is wrong to insinuate that there was a lack of supervision by the Bank of Italy," he told CNBC television, adding that his institution had nothing to hide and would cooperate with prosecutors probing the Tuscan lender.
Draghi also delivered a speech in Davos but took no questions from reporters.
Visco's task was made more difficult by a report in the Corriere della Sera daily on Friday which included excerpts of a document drafted by six BOI inspectors expressing concerns over the two main trades under scrutiny as long ago as 2010.
That report would have been sent to the BOI's head of bank supervision at the time, Anna Maria Tarantola, who has since left the bank to become president of state broadcaster RAI.
In Davos, Visco sidestepped questions about whether Draghi knew about the derivatives trades, which were conducted between 2006 and 2009 and involved Japanese bank Nomura and Deutsche Bank.
Internal auditors at Monte Paschi already detected anomalies at the bank's finance department responsible for derivative operations three years ago, daily Il Sole 24 Ore reported on Saturday, quoting parts of the audit dated Nov. 26, 2009.
However, the outcome of the audit was "partially favourable" for the Siena-based bank, contrasting with "partially unfavorable" rating given by Bank of Italy inspectors led by Vincenzo Cantarella at the end of an inspection from May-August 2010.
Press reports on Saturday suggest the scandal around Monte Paschi is widening. Corriere della Sera said prosecutors are investigating a large number of derivatives contracts and suspect possible accounting fraud and corruption.