* Monte Paschi trades done while Draghi was central bank chief
* Former economy minister says "stupefying" Draghi knew nothing
* Bank of Italy says structured trades "kept hidden"
By Gavin Jones
ROME, Jan 24 European Central Bank President Mario Draghi is facing criticism over a scandal involving loss-making derivatives trades made by troubled Italian lender Monte dei Paschi di Siena while he was Italy's central bank governor.
Draghi, who will attend the World Economic Conference in Davos on Friday, may have to field pointed questions about the structured trades which could cost Monte Paschi at least $1 billion.
Former Economy Minister Giulio Tremonti said in a tweet that it was "stupefying" that in his role as supervisor of Italy's banking system Draghi had failed to discover or prevent the trades, which took place between 2006 and 2009.
An ECB spokeswoman declined to comment on the matter, saying that it was "the responsibility of national authorities."
Current Economy Minister Vittorio Grilli avoided mentioning Draghi directly but stressed that it was not the government but the central bank that was responsible for bank supervision.
"It wasn't us that did the controlling," he told reporters. "On the checks, all I will say is that it is the responsibility of the Bank of Italy."
Underlining the gravity of the crisis, Italian President Giorgio Napolitano said Monte Paschi's latest problems were a "serious issue" but that he had "full confidence in the Bank of Italy."
On Wednesday the central bank tried to deflect any criticism, saying the nature of the trades had been "kept hidden" and were only recently divulged by new management appointed last year to turn the bank around.
Draghi, who has won wide plaudits as ECB president, left the Bank of Italy in late 2011 after a five-year stint as governor.
During this time he was also president of the Financial Stability Board, an international body charged with improving financial supervision and regulation.
The deals under scrutiny are the so-called "Alexandria" trade with Japanese bank Nomura, the "Santorini" trade with Deutsche Bank and a derivative called "Nota Italia", with an unspecified bank.
Chief Executive Fabrizio Viola said Italy's third biggest bank could face losses of as much as 720 million euros ($956 million) on the operations and the bank's shares have lost a fifth of their value since they came to light this week.
Analysts fear eventual losses could be higher and have urged Monte Paschi to come clean on any other potential surprises.
Monte Paschi, already one of Europe's most undercapitalised banks, had to ask for 3.9 billion euros in state loans last year to plug a capital hole stemming from its vast government bond portfolio and hedge transactions that had gone wrong.
One of the roots of its problems - the 2007 acquisition of smaller rival Antonveneta for a whopping 9 billion euros in cash just months before the beginning of the financial crisis - was also done under Draghi's watch.
Prosecutors are investigating why the bank paid such a high price for Antonveneta, stretching its finances to the limit.
The effectiveness of the Bank of Italy's supervision is being increasingly questioned, despite the fact the country's lenders complain it is more stringent than other European regulators in its monitoring of the Italian financial industry.
"One has to wonder what the Bank of Italy was doing given all the visits they've paid to Monte dei Paschi in recent months," said a source close to the situation.
"If what they came here to look at was only the information publicly available in the bank's financial statements, they could have done that from Rome."
The scandal has taken centre stage in the campaign ahead of Italy's national election on Feb 24-25 both because of the public money used to help the ailing bank and because of Monte Paschi's historical links to the centre-left. (Additional reporting by Silvia Aloisi; editing by Ron Askew)