For UBS, which had $599 billion in assets under management as of June 30, the merger would have provided a capital infusion, said one of the sources, who declined to be named because he is not allowed to speak to the press.

A UBS spokeswoman referred a request for comment to a statement made by UBS Chief Executive Sergio Ernotti during the company's second-quarter earnings call in which he said, "Our strategy builds on the strengths of all our businesses, including our diversified asset management business." The spokeswoman declined to comment on the discussions with State Street.

A State Street spokeswoman declined to comment.

For State Street, UBS' actively managed products would provide a nice complement to its mainly index-based strategies, which include passively managed exchange-traded funds, said the second source, who was also not allowed to speak to the media. State Street has $1.9 trillion in assets under management.

It is unclear why the discussions fell through, although one of the sources said he believed it was because the two companies could not agree on pricing and succession.

Another question mark is whether UBS is still looking to sell its global asset management business, although one of the sources said the bank is being careful about whom it is talking to. "They are not shopping it around everywhere," the source said.

Earlier this year, UBS needed to raise a roughly $16 billion to meet new capital rules.

(Reporting By Jessica Toonkel; Editing by Lauren Young)

• A Permanent Economic Emergency