Holiday Notice: The Morning Scan will publish next on Monday, Jan. 6. Happy new year and best wishes.

Receiving Wide Coverage ...

Volcker Rage Continued: The slow-motion car wreck that is the Volcker Rule took its latest gory spin Thursday when regulators sought to assuage banker rage over its uncertain treatment of trust preferred securities, or Trups. The securities — which are issued mainly by banks and insurers and have debt and equity characteristics — became a flashpoint for bankers following the Dec. 10 release of the final Volcker Rule, which cast a pall over the future of banks' Trups holdings. On Monday, Zions Bancorp (ZION) announced Volcker was forcing it to take a noncash charge of $387 million on its Trups portfolio and put it up for sale. BankUnited (BKU) in Miami Lakes, Fla. and Cape Bancorp (CBNJ) in Cape May Court House, N.J., followed with similar moves. Regulators responded late Thursday to the growing anger and confusion with a "Frequently Asked Questions" release stating that even if Trups are structured in such a way that a bank must sell them under Volcker, an institution might be able to restructure the security before a July deadline, the New York Times reports. Bankers responded with a Bronx cheer. Frank Keating, president of the American Bankers Association, released a statement declaring that the trade group "is dismayed that the regulators have not found a resolution to address the disruptive consequences of the Volcker Rule on community banks." Based on the input of other observers, the odious Volcker-Trups stew has many cooks. Floyd Norris, the Times' columnist, writes that in a sense banks like Zions are getting what they deserve. "A maneuver begun [by Zions] 14 years ago to circumvent capital rules is ending badly for the bank," he writes. Allan Sloan adds in the Washington Post that policymakers are getting the headaches they deserve after releasing a Volcker Rule that is "a triumph of complexity over common sense." Bloomberg's Jonathan Weil adds that "bureaucrats must have known they couldn't do anything that would force banks to unearth any long-buried losses in their financial reports. Because then many bankers would feel victimized. And America would never be the same until the banks could keep those losses unrecognized again." Weil says he's kidding. Really. New York Times, Washington Post, Bloomberg, American Banker

Europe Downgraded. Anyone Care?: The European Union was stripped of its triple-A credit rating by Standard & Poor's one day after its 28 national leaders took the final steps toward completing a banking union agreement that some officials believe is unworkable, reports the Financial Times. The rating agency said the downgrade to AA-plus reflects EU disagreements over common budgetary support mechanisms and the bloc's increasingly fragile financial profile. Such ratings agency moves frequently prove to be lagging, rather than leading, indicators, Bloomberg notes. "Investors often ignore ratings, as evidenced by the rally in Treasuries after the U.S. lost its top grade at S&P in 2011," it writes. "Yields on sovereign securities last year moved in the opposite direction from what ratings suggested in more than half of 32 upgrades, downgrades and changes in credit outlook." Financial Times, Bloomberg

Forex Intrigue: "Call me a snitch. Call me a rat. But call me at home 'cause that's where I'm at." The world's leading foreign exchanges bankers appear to be taking this jailhouse rhyme to heart as a probe into currency manipulation heats up. "Banks are racing to betray their competitors to avoid possible European Union fines for rigging foreign-exchange markets," reports Bloomberg, citing a person with knowledge of the EU's preliminary investigation. Lenders are vying to emulate UBS and Barclays Plc, which dodged penalties of about $4.4 billion by ratting on manipulators of interest-rate benchmarks, its source says. The moves come as regulators in the U.S., U.K., Europe and Asia are probing the $5.3 trillion-a-day foreign-exchange market following reports that dealers have been front-running client orders and attempting to rig benchmarks. At least 11 banks have disclosed investigations, and Citigroup (NYSE:C), JPMorgan Chase (JPM) and Barclays have suspended or put on leave senior currency traders. Now, say Wall Street Journal sources, the probe has unearthed what some bankers believe is evidence senior London-based traders frequently colluded to manipulate currencies. The evidence, in the form of electronic chat-room messages (won't they ever learn?), appears to show what banks have feared for months: that traders from different banks shared information about client orders and agreed to a sequence for placing their own trades to their advantage, the Journal says. As the investigation has intensified, bankers have shown their ability to adapt and learn by volunteering more often and with more information on currency markets than they did during investigations into Libor and Euribor rigging. "The reality is that if there any skeletons, they are going to come tumbling out of the cupboard," Stephen Smith, a lawyer at Reynolds Porter Chamberlain LLP in London, told Bloomberg. Wall Street Journal, Bloomberg

Wall Street Journal

The Federal Reserve's holdings of bonds and other assets has topped $4 trillion for the first time, a milestone the Journal says underscores questions about the efficacy of the central bank's easy-money programs. The Fed's portfolio — including Treasuries, mortgage-backed securities, loans, coins, buildings and other assets — is up from less than $900 billion prior to the financial crisis. The rise has been fueled by three rounds of bond-buying aimed at holding down long-term interest rates and encouraging spending, investing and hiring. The Fed's enormous balance sheet has earned it hefty profits in recent years but also raised fears that its ultimate legacy could prove to be a bout of inflation or new asset bubbles.

New York Times

The Securities and Exchange Commission weighed enforcement actions last year against several large financial companies — but then quietly backed down, the Times reports. After many months of investigating the roles of Wells Fargo (WFC), Goldman Sachs (GS) and Standard & Poor's in troubled mortgage securities — and even warning the companies that enforcement actions were possible — the agency closed or shelved these cases and at least two others. The Times says the reasoning behind the decisions, and the contentious way they divided camps within the agency, illuminates how difficult choices are made inside the regulator — and also raises questions about whether the SEC could have done more after the crisis to hold Wall Street accountable.

Elsewhere ...

Bloomberg: Investors, from multibillion-dollar hedge funds to individuals buying as few as 10 properties, have acquired more than one million homes in the past three years, Bloomberg reports. Most started out paying cash; now, as the bet on rental housing turns into an industry, big landlords are benefiting from access to financing at a time when banks remain reluctant to lend to homebuyers. "Now it's just free-market capitalism and big money is coming in because they have an advantage. Is that good? Well, it's gone from being good to being disturbing," says Thomas Lawler, a former Fannie Mae economist who in 2005 warned of a housing bubble. One long-term concern is that investors will keep driving up property prices and set the stage for another housing bust.

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