The effect of bank regulation on profitability and liquidity of private commercial banks in

NBE-Bills purchase: Represent amount of forced bill purchase by a bank, which is measured as Dummy variable before and after the bill purchase requirement. The researcher expects that it has a negative effect on the profitability and liquidity of private commercial banks in Ethiopia, while it decreases liquidity of the banks.

Hypothesis 1: requirement of NBE bill purchase has negative and significant impact on the profitability of private commercial banks.

Hypothesis 2: requirement of NBE bill purchase has negative and significant impact on the liquidity of private commercial banks.

2. 
   Legal Reserve Requirement: It is a portion of bank‘s asset in National Bank of Ethiopia with no interest and it has proxied by ratio of Reserve Account in NBE to total deposit (Eden, 2014). Furthermore, high reserve requirements decrease loan able funds
   

available for investment by reducing the fraction of given volumes of deposits rate and by reducing the equilibrium volume of deposits through decreasing the profit-maximizing deposit. Hence they are considered as a leakage in the intermediation process (James, 2002).

Hypothesis 3: legal reserve requirement has negative and significant effect on profitability of Private commercial banks in Ethiopia.

Hypothesis 4: Legal reserve requirement has positive and significant effect on liquidity of Private commercial banks in Ethiopia

3. 
   Capital Requirement: The minimum paid up capital requirement of national bank of Ethiopia and it measured by natural log. of total paid up capital amount. Capital serves as a buffer against losses and hence failure. Furthermore, with limited liability, the tendency for banks to engage in higher risk activities is curtailed with greater amounts of capital at risk.
   

Hypothesis 5 Capital requirement has positive and significant effect on profitability of Private commercial banks in Ethiopia.

Hypothesis 6: Capital requirement has positive and significant effect on liquidity of Private commercial banks in Ethiopia

4.