A report drafted by the Bank of Italy in 2010 (headed at the time by Mario Draghi, now president of the European Central Bank) shows inspectors were aware that a 2008 trade struck with Deutsche Bank AG was the mirror image of an earlier deal Monte Paschi had with the German lender.

As reported by Bloomberg, the Italian bank was losing about €370m on the earlier transaction, dubbed Santorini, as of December 2008. The new trade posted a gain of roughly the same amount and allowed losses to be spread out over a longer period, the document shows.

The newly revealed report (dated 17 September 2010) and marked “private” shows the Bank of Italy was aware that by choosing not to book the trade at fair value Monte Paschi avoided showing a loss at the time. If the bank had used a mark-to-market valuation in the fourth quarter of 2008, it would have been included in its year-end report as the credit crisis was cresting, with potentially grave consequences on the bank’s finances.

According to Bloomberg, Deutsche Bank and former executives of the Frankfurt-based lender are on trial in Milan for colluding with Monte Paschi on charges of market manipulation and false accounting. At a hearing October 3, a lawyer for the former employees, Giuseppe Iannaccone, introduced the central bank’s 2010 findings as part of their defence.

The lawyer also elicited testimony at the hearing from Italian central bank inspectors on how the transactions made it look as if the losses had disappeared. Iannaccone asked a central bank official whether the Bank of Italy knew the loss was offset.

“That’s correct,” Mauro Parascandolo, the official, responded. Asked if the Bank of Italy sought to probe or file a complaint against Monte Paschi after its inspections, he answered, “No.”

The trial is expected to last at least another year, lawyers in the case say.