European Central Bank president Mario Draghi met with Vittorio Grilli in Milan just hours before Italy's finance minister was due to face questions in parliament over his role in the financial scandal at Banca Monte dei Paschi which threatens to engulf next month's national elections.
An ECB spokesman confirmed a meeting between Draghi and Grilli but declined to provide details. Draghi headed the Bank of Italy when Monte dei Paschi purchased Antonveneta, an Italian lender, from Spain's Banco Santander in 2007 and when it says former Monte dei Paschi managers hid critical details of two complicated derivatives transactions that may have disguised its true financial position prior to obtaining its first round of state support in two years later.
Grilli will testify to parliament's Chamber of Deputies in Rome later Tuesday following an emergency meeting with representatives from Italy's Finance Ministry, market regulator Commissione Nazionale per le Societa e la Borsa and officials from the Bank of Italy.
Italian prosecutors are also probing the €9bn (£7.7bn; $12.1bn) purchase. Corriere della Sera reported that Monte dei Paschi signed a non-official deal with Banco Santander to inflate the Antonveneta price and share the gains of the controversial deal.
Monte dei Paschi said Monday that it found no evidence of bribes or collusion in the Antonveneta deal but did note that "errors were made" in constructing the derivatives trades.
Draghi's role in the scandal could be embarrassing for the ECB president as he prepares to take on responsibility for the oversight of thousands of Eurozone banks next year.
Draghi, who served as BoI governor from January 2006 until October 2011, not only signed off on the Antonveneta deal - despite it being €2.3bn more than Santander had valued it just two months earlier - but may also have been alerted to the dangers of derivatives trades at Monte dei Paschi more than two years ago.
An internal BoI memo - first published last week and signed by chief market watchdog Vincenzo Cantarella - raised red flags about the transactions in November 2010 that were apparently never pursued.
Prime Minister Mario Monti granted government approval of the second state rescue in June 2012, after the bank failed the much-publicised Eurozone stress tests, owing to its huge holdings of Italian government debt the previous year.
The BoI approved €3.9bn in government aid Saturday after Monte dei Paschi shareholders agreed to €6.5bn in capital increases for Italy's third-biggest lender that were needed to secure the loans on 25 January.
Monte dei Paschi was founded in 1472 and is considered the world's oldest commercial bank. It's currently the third biggest Italian lender and a major holding of the country's Democratic Party which is currently leading polls heading into next month's parliamentary elections.
Monte dei Paschi shares traded around 2.2 percent higher in Milan today at €0.276 each. The shares fell at least 23 percent between the time the hidden transactions were first reported by Bloomberg news on 17 January and shareholders agreed the capital increase on 25 January.