No, the compositor will not degrade rendered images.
The compositor works with 32bit float precision, in scene referred linear.
Of course there could be intentional or unintentional degrading by using nodes and poor judgement on the node tree.
Banding would happen when the image is saved to 8 bit formats as it cannot resolve subtle gradation with only 255 ...
You need to Connect the matte output of the Crytomatte to the Alpha Over Node for it to work as shown in the image. It will get rid of the Asteroids.
Pls pack the textures if you are sending a blend file as the textures go missing as you can see the image.
As mentioned in the Comments If you set it up like in the Image you can use Cryptomatte. Also I ...
When you move Glare-Treshold from 1 to 0 you can see Glare works (somehow).
Reason why it is not working for red emission object is because you saved sequence as PNG, that is 8-bit color depth, so you lose emission power information.
New scene with the Cube worked, because you composite direct unsaved render - full color depth (high dynamic range), that is ...
I would say, you should affect Alpha channel not the RGB values for correct result.
connect EXR alpha channel to RGB Curve node
to combine image and alpha channel back add Set Alpha node
RGB channels of Shadow Catcher probably does not contain any information at all.
Note: for images like PNG (without separate alpha channel listed) you can use Separate RGB ...
What you are experiencing is a quantization error called banding.
Most monitor can only display 8 bits per color or 256 tones from dark to bright. There are just not enough levels to do a subtle gradient between two dark tones or similar colors.
It is a limitation that will show in most monitors (unless you have one that can do 10 bit display).
As a ...
The correct way is to export the shadow pass. If you don't wanna do this, create a "Shadow pass" like with a white background so curve have something between black and white and not only black and alpha. after that you should be able to edit the shadow and add this to your scene using a Multiply blend mode.
Hope that helps.