Final answer:
The chartering process is designed to address adverse selection by carefully vetting who can open a bank and under what terms. Regular bank examinations aim to mitigate moral hazard by monitoring bank behavior to ensure that risks are appropriately managed.
Step-by-step explanation:
The chartering process is specifically designed to deal with the adverse selection problem, and regular bank examinations help to reduce the moral hazard problem. Adverse selection occurs when potentially high-risk customers are more likely to apply for insurance or credit, while safer customers might not. This is mitigated through the chartering process, which includes a thorough review of the bank's business plan and the character, experience, and financial history of its organizers. On the other hand, moral hazard becomes an issue when a party insulated from risk behaves differently than it would if fully exposed to the risk. Regular bank examinations are conducted to ensure that banks are not taking excessive risks just because their depositors are insured by the FDIC or equivalent institutions.