The effectiveness of capital regulation in mitigating bank risk remains a debated issue, particularly within advanced economies where financial systems are both complex and highly integrated. Although capital regulation frameworks such as Basel III aim to improve bank stability, existing literature on the impact of capital requirements and economic growth on different types of bank risk offers mixed evidence on whether stricter capital regulations effectively reduce risk or implicitly encourage risk-taking. This study addresses this gap by examining the impact of capital regulation and economic growth on bank risk in G7 countries. Using a balanced panel dataset of 101 commercial banks across G7 countries over the period of 2003 to 2023 from the Fitch Connect Database, the study employs both the Fixed Effects and System Generalised Method of Moments (System GMM) to account for unobserved heterogeneity, endogeneity and dynamic effects. Credit risk is measured by non-performing loans (NPLs), while insolvency risk is measured using the Z-score. The study also incorporates key bank-specific and macroeconomic variables, including inflation, unemployment, profitability (ROA), and bank size. The empirical results find that higher regulatory capital is positively associated with credit risk (measured by non-performing loans) but negatively associated with insolvency risk (measured by Z-score). Economic growth (measured by annual GDP growth rate) is also negatively associated with credit risk and positively associated with insolvency risk. Inflation is a significant determinant of credit risk, while unemployment is found to be a strong and consistent predictor of both credit and insolvency risk. Profitability (ROA) reduces credit risk and improves financial resilience. Bank size is associated with higher credit risk and shows no stable relationship with solvency outcomes. The study also reveals a significant interaction effect of economic growth with capital regulation to moderate the risk-capital relationship. These findings provide important policy implications. While strong capital regulation is essential for financial stability, it should be complemented by macroprudential tools that respond to changes in the economic cycle. A balanced and flexible regulatory approach, aligned with the principles of the Basel III framework, can help mitigate credit risk and improve the overall solvency of banking systems in developed economies.