What prevents people from withdrawing all their money in 500€ notes from the bank, trading them in for 550€, exchanging the money for 500€ notes at the bank and repeating this until they're filthy rich?

Well, maybe there is a certain Risk attached to selling 500€ notes to a total foreigner in a shady suburb of Paris. Might be that you lose a 500€ notes every five transactions if you are just a casual guy.

On top of that it is not that easy to acquire 500€ notes: going to your regular ATM will not work because nobody has a use for these large notes except to store money.

These suburbs where you can sell your 500 eur note aren't probably the ones you want to go to carrying a stack of 500 eur notes.

You might end up selling them for 0.

500€ notes are not officially available in France. Usually people bring them back from Luxembourg. And then, it's rarely legal to boot -- Luxembourg is a tax haven, and French customs roam the Thalys (high speed train) looking for people carrying too much money back to Paris to be perfectly honest.

I'm pretty confident that these notes are only there for shady if not criminal uses and nothing else. The legal uses are merely justifications for the real, forbidden ones.

These aren't your usual suburbs.

https://en.wikipedia.org/wiki/Banlieue#Crime_and_arrest

Scarcity of 500 euro notes I would assume.