Macroprudential Policies and Financial Stability: A Quantitative Assessment of Strategies to Mitigate Systemic Risk in Banking Networks

<title>Abstract</title> <p> Managing systemic risk remains a paramount concern for both monetary and regulatory authorities. Recent financial crises have underscored the capacity of interbank linkages to amplify individual vulnerabilities into network-wide crises. Consequently, evaluating macroprudential strategies through a quantitative lens is vital for engineering financial stabilization mechanisms. This research enhances the UEDRL ( <italic>Undistressed - Exposed - Distressed - Recovered - Liquidated</italic> ) compartmental framework by integrating an optimal control scheme. The expanded model maps the dynamic propagation of risk across financial nodes and tests the performance of various supervisory policies. Numerical simulations demonstrate that early macroprudential interventions markedly reduce the fraction of distressed nodes, break contagion chains, and accelerate the system’s transition back to an equilibrium state. These findings highlight that prompt, well-coordinated intervention by supervisory bodies is essential to minimize the total economic burden of banking crises. </p>