Jessica Silver-Greenberg

JPMorgan Chase is working behind the scenes to avert a major potential embarrassment.

Weeks before Vikram S. Pandit’s surprise resignation on Tuesday as chief executive of Citigroup, the banking giant’s powerful chairman, Michael E. O’Neill, was privately huddling with other board members to plan how to replace him, according to several people briefed on the talks.

That didn't take long. The economy hasn't yet recovered from the implosion of risky investments that led to the worst recession in decades—and already some of the world's biggest banks are peddling a new generation of dicey products to corporations, consumers, and investors.

Taxpayers are taking another hit as strapped local governments fork over billions in fees on investments gone bad

At first glance, banks seem to be recovering nicely from the financial crisis. But investors cheered by optimistic earnings reports could soon face a painful surprise.