http://www.irs.gov/irm/part4/ch57s01.html
Instituted in 1970. Amended in 1995 to lower the limits to where they are today. Banks seem to fall into two classes with this: those covering their butts in case of litigation and those using it to delay transactions to reap the use of the money for a longer period. I believe that the hold on funds in the part of this I find objectionable.
Nobody wants to do paperwork, so it's self-limiting to some degree - but basically the 10k limit is too arbitrary lots of legitimate people deal with large sums - it's just a means of identifying those with limited income whose finances don't jibe with their reported income? Stupid crooks driving maserattis on the side etc. etc.
Wrong. Banks do this because if they don't the FDIC will shut them down. The FDIC comes in annually and makes sure a SAR was filed on any and everything that has the potential of being money laundering.
Also, banks can't hold a deposit of cash (which is exactly what this law applies to). They must give you immediate credit.