In my thesis, I investigate risks that lead to financial instability and the role macroprudential regulations can play to contain those risks. In the first chapter, I study whether macroprudential policies can adequately address financial stability concerns. The key finding is that interest rate is the tool with a consistently significant and larger impact on bank lending compared to reserve requirement policy. The second chapter studies interconnectedness and how it might contribute to systemic risk by constructing a novel dataset of large exposures and developing a contagion mapping (CoMap) model. Key findings highlight that the degree of banks’ contagion and vulnerability depends on network-specific tipping points affecting the magnitude of amplification effects. The third chapter investigates how banks’ precautionary behaviors may amplify or mitigate contagion within the global banking network. The key finding is that the overall numbers of distress and default events are reduced, albeit with variations across individual banks pointing to non-linearities at play. We show how simultaneous domestic default shocks to smaller banks may induce relevant contagion effects to the euro area banking system, highlighting how isolated domestic shocks may not be a negligible source of systemic risk in a highly interconnected system.