Updated from 12:23 p.m. ET

Financial firms were mostly falling along with the major averages Wednesday, as reports of increased scrutiny for

Citigroup

(C) - Get Report

and

Morgan Stanley's

(MS) - Get Report

fourth-quarter loss contributed to investor unease.

The KBW Bank Index closed down 1.6% at 44.98, and the Amex Securities Broker/Dealer Index gained 0.25% to 77.12.

After dipping $1.33 in early trading,

Morgan Stanley

shares were off their lows, then closed up 37 cents, or 2.3%, at $16.50. The bank holding company announced a loss of $2.37 billion, or $2.34 for the fourth quarter. A year ago, Morgan Stanley lost $3.61 billion, or $3.61 a share.

Meanwhile, Citigroup, a member of the

Dow Jones Industrial Average

, was falling 4.9% to $7.83.

The Wall Street Journal

reported Wednesday that the banking behemoth was facing

additional regulatory scrutiny

in part because of its participation in the government's Troubled Asset Relief Program.

Elsewhere, a report in the

Financial Times

suggested that Citi would be

merging its investment and corporate banking

operations.

On the winning side,

Goldman Sachs

(GS) - Get Report

added 3.7% to $78.78, building on the previous day's gains despite announcing its first loss as a public company on Tuesday.

Among regional banks, shares of

Colonial Bancgroup

(CNB)

gained 2.3% to $2.25,

Regions Financial

(RF) - Get Report

rose 0.8% to $8.77 and shares of

Zions Bancorp

(ZION) - Get Report

fell 2.44% to $26.39.

JPMorgan Chase analyst Steven Alexopoulous noted that those three banks were most at risk for needing equity in the months ahead.

On the other hand, Alexopoulous noted

People's United Financial

(PBCT) - Get Report

and

City National

(CYN)

had the highest equity levels among midcap banks.

Still, shares of People's United fell 1.5% to $17.85 and City National stock gained 2.8% to $44.90.

Following a downgrade by JPMorgan's Alexopoulous to neutral from overweight, shares of

Synovus Financial

(SNV) - Get Report

fell 0.63% to $7.95.

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