Abstract: Between 1990 and 2006, the regulatory authorities for the Nigerian banks subjected the sector to a series of capital adjustments to stabilize the industry. The practice generated growth in the structure, functionality and size of the system but with minimal effects on distress management and economic growth. This study evaluates the implications of capital regulation on Nigerian banks� financial health and economic growth 1990-2006. Data collected from the publications of bank regulatory authorities and other relevant literature were examined for theoretical relationship using the regression analysis; CAMEL-ratings and Granger causality test. CAMEL-ratings for the financial soundness of the sector was consistently <15% for >90% of the tested period but a regression test indicated a positive linkage (R² = 0.623) between capital regulation, bank distress management and asset quality. However, a Granger causality test found that, while changes in economic growth is a predictor of bank capitalization, such capitalization has not significantly affected economic growth. The use of multiple regressions to test causality between variable remains a tools of general application at the theoretical level. Impacts of regulatory policies on bank performance have also been examined in some literature. However, little empirical work exists that links the regulation of bank capital to financial health and economic growth especially, in the Nigerian case. This study contributes in this area.