That's a loopback alright. I'm sure most modern umanaged switches will detect it and I'm quite sure managed switches support STP..
But STP might be the cause the network is "crashing". Recalculating the tree can take a long time if not configured correctly and the entire network will be down in the mean time.
If the network is anything like I've seen, add a switch here, there.. Few months later another there.. etc.. it might need a major reconfiguration.
Another good thing to do (and boost your security a bit) is to disable all unused ports on your switches. You can stick anything[*] in a disabled port, it won't work.
[*] Not really anything though.. 220 volts does some fecking gawdawful things to a switch
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