PayPal cannot take more money out of your account than what is in the account. If you have $500 in an account the bank will not let PayPal withdraw $5000 from it. It's not different from writing a check for $5000, which will just bounce.

The bank is not in the business of allowing overdrafts and then somehow collecting the difference.

  > The bank is not in the business of allowing overdrafts
  > and then somehow collecting the difference.

But one's main bank is? I don't see how the intermediary is any different in that regard?

No bank will honor your check for more money than is in your account. The amount in your account gives a hard stop on the amount you can lose.

Having a separate account with enough for the current Paypal transaction (that you refill from the main bank account as needed, in a few mouse clicks) means you limit your losses from a transaction gone wrong with a major company.

Can a malicious player try pulling money from your main account? Absolutely. But the chances of a large company, like Paypal, hitting you like this on an account not registered with them is zero. And your bank's fraud protection should stop an attempt to pull a large sum from your account by an unknown company in a sketchy country.