Capital formation or real investment is an essential component for economic development andrngrowth. Capital formation may take place for many reasons. In any of the cases, capitalrnformation or real investment can only be realized if adequate fundsrnare available. To financerninvestment required for economic growth and capital formation, the economy needs torngenerate sufficient savings. This requires an institutional arrangement that encourages savings,rnwhich will result into productive investment. Bank play vital role in the economic development ofrna country by promoting capital formation through rising of the financial resources. Thesernsavings are made available to the businessman; make use of them for productive purposes in therncountry. Therefore, banksâ€™ participation in the financial sector of developing nations raisesrnmany questions which remain unanswered. Key among them is the issue of how effective theyrnhave been in mobilizing domestic savings and in channeling the savings to enhance capitalrnformation through the distribution of credit. Thus, this research paper investigated the role ofrnbank deposit mobilization and credit financing in Capita Formation of banking industry inrnEthiopia. The study was undertaken based on an ordinary least square (OLS) model byrnemploying annual time series data of 21 years for the period of 1994 t0 2014. The study usedrnGross fixed capital formation (GFCF) as dependent variable, representing bank credit (BC),rnbank deposit (BD), bank investment (BI) as independent variables, and national saving (NS) andrnreal interest rate (RIR) as control variables . The findings of analysis showed that bank deposit,rnbank credit and national saving has a great role on capital formation in Ethiopia since therncoefficients of the variables are statistically significant. However; bank investment and realrninterest rate become insignificant effect on capital formation in Ethiopia, since the coefficients ofrnthe variables arernturned out to be statistically insignificant. Therefore; Needless to mention,rnEthiopia needs to continuously build a strong cooperation between banks and all concernedrngovernment bodies in order to take the major role to sustain the saving culture through financialrnliteracy, should design and implement credit policy that promotes capital formation in therneconomy in order to finance medium and long term projects,rnand also enhance banks torncontribute significant role on security portfolio investment in a country that leads to capitalrnformation which is an essential component for economic development and growth.rnKey Words: Capital formation, banking industry in Ethiopia, Bank Deposit, Bank Credit