China's banking regulator ordered some of the nation's smaller lenders to set aside more funds to avoid a cash shortfall, three people with knowledge of the matter said, signaling rising concern that defaults may climb.

China Banking Regulatory Commission (CBRC) branches asked some city commercial banks and rural lenders to strengthen liquidity management this year, the people said, asking not to be identified because the matter is confidential. Different requirements are being instituted by province, such as quarterly stress tests, after CBRC studies last year showed increasing risks at those lenders, the people said.

The People's Bank of China (PBOC) signaled on Feb. 8 that volatility in money-market interest rates will persist, underscoring investors' concerns that financial stresses could drag down growth in the world's second-biggest economy. The bailout of a 3 billion-yuan ($495 million) high-yield investment product days before it matured last month highlighted challenges for authorities seeking to rein in an unprecedented credit boom.