Abstract: Based on the samples of 112 small and medium-sized banks from 2011 to 2021, this paper analyzes the impact of digital transformation on the risk level of banks from the perspective of mathematical models and empirical studies, meanwhile, it includes the impact of digital transformation on the risk level of banks in the framework of capital replenishment for the analysis. The results show that, firstly, the impact of digital transformation on the risk of small and medium-sized banks has an inverted“U”structure, and this finding still holds after a series of robustness and endogeneity tests; secondly, the heterogeneity tests conducted in terms of size, region, and whether being listed reveals that digital transformation has a higher impact on the larger-scale banks and the small and medium-sized banks located in the eastern region, while the digital transformation of listed banks has a better inhibitory effect on bank risks than that of non-listed banks; thirdly, if capital supplements are provided to small and medium-sized banks in the process of digital transformation, it will also have a moderating effect on the level of bank risks. The above findings suggest that small and medium-sized banks should continue to increase their digital transformation efforts to curb bank risks, and that capital supplements should also be provided to small and medium-sized banks to increase their digital transformation ability to curb bank risks.

Key words: digital transformation, small and medium-sized banks, bank risks, capital replenishment, fintech