The financial system plays a pivotal role in economic activities in any country. Thus it isrnvital to determine the status and assess the financial health of the financial system and takerncorrective policy measures continuously. The main objective of the study is to examine thernimpact of National Bank of Ethiopia directive: NBE bill purchase requirement on thernperformance and liquidity of private commercial banks. Balanced fixed effect panelrnregression was used for the data of eight private commercial banks in the sample coveredrnthe period from 2007 to 2014 with a total of 64 observations. The study finds that purchasingrnNBE bill had a negative and significant impact of the profitability of private commercialrnbanks in Ethiopia. However, the magnitude is not severe to result in loss. Moreover, the prernand post policy periods comparison revealed that a relatively better profitability record forrnprivate commercial banks during the time of policy restrictions by way of clearing the excessrnliquidity holding of banks, diversify other fee generating services and the cost related to billrnpurchase to some extent seems covered by the borrowers (stable liability prices and banksrndiscretion to adjust their asset prices). Similarly the requirement of purchasing NBE bill hadrnnegative and significant impact on the liquidity of private commercial bank in Ethiopia. Inrnaddition the pre and post periods comparison revealed liquidity of private commercial banksrndecreased after requirement. This is due to the fact that the requirement of purchasing NBErnbill has a possibility of creating maturity mismatches because Private Banks collect savingsrnmostly at two to three-year maturity and even shorter in some cases and fulfilling the 27rnpercent requirement means that they have to freeze these resources for 5 years.rnKey words: government intervention, liquidity, NBE bill, profitability; private banks,rnregulation, supervision