<p>Diversification and liquidity risk remain unexplored in banking literature; therefore, to fill this gap, the study aims to investigate the relationship between loan and funding diversification and liquidity risk. The study uses a two-step GMM procedure and collects data for Asian banks over the period from 2000 to 2023. The hypotheses testing confirms that diversification in bank loans reduces the bank liquidity risk when measured in cash and liquid assets to total assets ratio. However, it increases the liquidity risk in terms of bank deposits. The findings uncover in empirical investigation that funding diversification is supportive in terms of liquidity holding, as evidenced by all liquidity measures. The results indicate that the role of diversification (loans and funding) to influence liquidity risk is higher for commercial banks compared to Islamic and savings institutions in Asia. The outcomes highlight that loan diversification contributes more to the liquidity risk of well-capitalized, large-sized, high-growth banks than undercapitalized, small-sized, and low-growth banks. The heterogeneity in empirical findings has implications for bank managers, regulators, and economists to formulate appropriate solutions to deal with liquidity issues in Asia.</p>