This study aims to investigate the impact of bank regulations on bank stability. This study holds crucial significance in Indonesia’s long regulation journey within a bank-based economy to maintain stability in various business cycles, including the Asian financial crisis. Additionally, although the capitalization of the Indonesian banking sector is the highest among the G-20 countries, the capitalization of these more than 100 banks varies widely and is concentrated among large banks. Thus, it is necessary to implement the capital requirement policy meticulously. This study examines the impact of bank regulations in terms of capital requirement and bank capitalization on bank stability using a sample of Indonesian commercial banks and employs a dynamic panel regression. We expect to improve from the previous study by using the research period from 2001 to 2019 that captures different business cycles, analyzing three of Indonesia’s bank regulations, and providing further analysis by incorporating the role of bank market power and size in the relationship between bank capital and bank stability. The results show that capital discipline implemented in the capital requirements significantly supports bank stability. Furthermore, the findings show that low-to-middle capitalization banks are associated with weak bank stability in terms of solvency. However, low-capitalized banks tend to be more prudent in granting credit, so exposure to credit risk is low. Moreover, this study reveals that market power and size strengthen the impact of capital on bank stability. However, such an influence should be accompanied by intense supervision to avoid credit risk exposure.