China's four biggest asset management companies are China Huarong Asset Management Co, China Orient Asset Management Co, China Cinda Asset Management Co and China Great Wall Asset Management Co.

A rare government takeover of a little-known Baoshang Bank in May has revived concerns about the true health of hundreds of small lenders in the country as a slowing economy and souring loans test their capital buffers and drain their reserves.

"The regulator has asked about our opinions and plans. We're studying the specifics - whether it should be in a form of takeover, M&A, or restructuring," one of the sources said, when asked whether AMCs are allowed to participate in the M&A deals in smaller banks.

"The regulator wants us to be prepared," the source added.

The M&A and restructuring of smaller banks is being studied in one of the four largest AMCs, but hasn't been implemented yet, the second source said.

China's big state lenders first established the four asset managers in the late 1990s to help them deal with mounting non-performing loans.

(Reporting by Li Zheng in SHANGHAI, Cheng Leng and Ryan Woo in BEIIJNG; Additional reporting by Samuel Shen, Editing by Simon Cameron-Moore)