A bank doesn't exist to safeguard your capital. That's what they tell you to convince you to deposit your funds there. The government promises to make good an

A bank doesn't exist to safeguard your capital. That's what they tell you to convince you to deposit your funds there. The government promises to make good any bank failure in order to convince you to deposit your funds in a bank both because it helps the economy and because it makes it easier to keep track of you for tax purposes. Before this guarantee it was common enough for a bank to fail and depositors would lose all their funds. A bank exists to take in deposits, pay interest and then loan that money out to other people at a higher interest rate. It's a completely different model to PayPal, which exists as a payment transfer company along the likes of Western Union. Yes, they avoid banking regulations, but the banking regulations exist to protect the banking industry, as widespread bank failures can seriously damage the economy. This is because banks use fractional reserve banking and actually don't have the funds to satisfy all depositors at the same time. There's no reason why a payments transfer company should be regulated like this, because PayPal should be able to make good all requests for funds at the same time, as they don't (well, I hope not) leverage the funds on deposit and lend them out again. If any regulation should be applied to PayPal, it should be in the area of consumer protection by having an ombudsman or defined area of recourse for settling disputes. But because of the trans-national design of the business, this is never going to work. And any increase in regulation is going to cause an increase in fees, which is the reason everyone uses PayPal in the first place.