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) and Morgan Stanley's ( MS) 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) 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) rose 0.8% to $8.77 and shares of Zions Bancorp ( ZION) 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) and City National ( CYN) had the highest equity levels among midcap banks.