The purpose of this paper is to research the interdependence between profitability and liquidity of banks in the Republic of Croatia and to determine the impact of gross domestic product, inflation, interest rate spread, size and capitalization of banks, and minimum reserve requirements in the period from 2005 to 2006. using dynamic panel data models. Except for the above, the purpose is to research the financial crisis impact on the main dependent variables. The basis of the research are two dynamic panel data models whereby in the first model the dependent variable is profitability indicator and in the second one it is liquidity indicator. The results of both models showed that the main hypothesis is confirmed, otherwise the interdependence of profitability and liquidity is negative and statistically significant in both directions. The sub-hypotheses regarding the impact of the bank size and bank capitalization, the financial crisis impact and impact of economic developments have been partially affirmed. The financial crisis impact on profitability is significant and negative, while impact on liquidity is insignificant and positive. The size has a positive impact on both variables, but is only significant for the profitability variable. The capitalization has a positive impact on profitability and a negative impact on liquidity. Inflation has a negative impact on profitability, while the gross domestic product growth is significant only for the liquidity variable and it has a negative impact. The minimum reserve requirements have a positive impact, while interest rate spread has a positive, but insignificant impact on bank liquidity.