This research was conducted as an investigation into the complexities of thernattempts of the Government of Ethiopia to control banking business byrnapplying strict regulatory intervention and its impact on the participation ofrnforeigners in the banking business in the country.rnTo start with, the researcher accepts the universal argument that banks arernunique from other business organizations. They are unique because theyrnprovide the most important contribution to any economy; they uphold thernpublic trust and confidence; they are key players in the payment andrnsettlement system for the government, business sector and households; theyrnare deposit takers, liable for financial assets that are the property of the entirernsocial system which are to be repaid, in full, on demand or on the date they arerndue; they playa major role in the allocation of finan cial resources, acting as anrnintermediary between depositors of surplus funds and borrowers in need ofrnfunds; they are highly leveraged: in comparison to commercial or industrialrncompanies i.e. cash flow sensitive to meet repayments.rnThis unique feature makes banking a risky business whose failure may resultrnin systemic risk and necessitated special and strict regulatory intervention byrngovernments.rnAmong the various regulatory intervention mechanisms, investment limitationrnin banks and by banks themselves are found to be essential factors that affectrnthem for good or bad.rnThe nature and scope of investment in banks and by banks is regulated inrndifferent countries differently. At the same time, the performance and stabilityrnof banks have got a lot to do with the flexibility or strictness of the regulatoryrnregime concerning investment in and by banks.rnThe concerns related to protection of infant banking industry against POI & thernregulator'S competency issues may not be neglected. But Ethiopian law is toornstrict in this regard. Hence, at least equity participation of foreigners isrnadvisable.The other limitation on investment In banks is on national investors.rnAs comparative study shows, limiting investment by 5% of the subscribedrncapital of a bank is too strict. This affects the capital mobilization capacity ofrnbanks in particular when viewed in r ela tion to total exclusion of FDI andrnprohibition of an influential shareholder not to invest in another bank. Thisrnintern directly affects the efficiency and competitive advantage of banks.rnBeyond that, this stringent restriction on national investors seems to bernagainst the constitutional right of citizens to acquire property based on therntheory of vested rights. Hence, if the intention is to control the power ofrninfluential shareholders, the researcher recommends that recognizingrnnonvoting shares is advisable.rnIndeed, the 5% restriction itself seems to be too strict because it affects therncapital mobilization, competition capacity and efficiency of banks which needsrnsome relaxation. Moreover, Ethiopian law has n eglected all related factorsrnother than ownership as it does not regulate issues of pledgee and usufructory.rnWith respect to the concern related to investment by banks, this researchrnsuggests that scope of economy of efficiency Vs undue affiliation withrncommercial entities, stability Vs systemic risk, the degree of investment risk Vsrnloan provision should be analyzed. On the other hand, it is argued thatrninvestment as a source of revenue needs due attention.rnAs part of a concluding remark, the findings of the research confirm that it isrndifficult to qualify the advantages and risks associated with investment ofrnbanks in equity of commercial entities. Hence, without appriori assessmentrnand qualification, it is not easy to suggest the optimal level of mixing. But,rngenerally, comparative study shows that Ethiopian law takes a moderaternposition. Based on the result of the study, the researcher recommends that thisrnissue demands furth er economic analysis /research.