How does the government safety net cause adverse selection?

Although, the government safety net is determined as a successful project to protect depositors, removing the problems of bank runs, and bank panics by assuring depositors that their money is safe; thereby, the depositors can easily put their funds in banks. But, this safety net is related to the problem of adverse selection.

Due to the presence of adverse selection problem, there exists a trouble with a safety net say depositors insurance wherein the depositors are most likely to make an adverse outcome insured against bank failures are those depositors and clients who intentionally has a desire to tale the advantage of insurance.

Along with this, due to the presence of this insurance against the loss, the banks can easily look after the attractive industry to get away from the fraud and embezzlement.