Some of our tellers have been allowing customers to cross out and initial 'For Deposit Only' on the back of checks and allowing the customer to cash the check or take cash back from the deposit. Do you allow this?

No.

Deposit, then withdraw.

Probably fairly low to no risk if the check is made out to them and it it is their own account, but we like to follow rules.

Same as Just Jay. "For Deposit Only" checks will only be taken for deposit, no exceptions. They can turn around and make a withdrawal easily, if they're depositing the item into their account.

If the check is payable solely to me I can cross out the restrictive endorsement and get cash back. If the check is payable to my spouse (or anyone else) I cannot cross out the restrictive endorsement and get cash back.

Ditto to what Ken said. The only party with an ox to gore if the "for deposit only" instruction is ignored is the party that put it there. If that's the party who wants to cash the check, and you'd ordinarily cash it for him/her if those three little words weren't there, what's the big deal? But if Ken's signature appears in the endorsement following "for deposit only" and I bring it to his bank and try to line out the instruction and endorse under Ken's signature, you can plan on a visit from Ken or his attorney.