This paper analyzes the impact of bank digital transformation on systemic risk. It finds that digital transformation significantly reduces systemic risk, and this conclusion holds even after considering model endogeneity. The reduction in systemic risk is attributed to increased bank competitiveness, which is driven by lower marginal costs resulting from digital transformation. The effect of digital transformation on systemic risk is heterogeneous, being more pronounced in large commercial banks, those without fintech subsidiaries, and systemically important banks. The study uses data from 2013 to 2021, creating a three-dimensional indicator system for bank digital transformation (cognitive, organizational, and product). Empirical analysis shows that digital transformation reduces systemic risk through the mechanism of increasing bank competitiveness, with the reduction in marginal costs being the key factor. The study also explores the heterogeneity of the effect of digital transformation on systemic risk across different bank sizes and transformation modes. The results support the hypothesis that digital transformation reduces systemic risk by enhancing bank competitiveness. The study concludes that digital transformation helps reduce systemic risk by improving bank competitiveness, which is crucial for the stability of the banking industry. The findings contribute to the understanding of the mechanisms by which digital transformation affects systemic risk and provide insights for improving the path of bank digital transformation and maintaining financial stability.This paper analyzes the impact of bank digital transformation on systemic risk. It finds that digital transformation significantly reduces systemic risk, and this conclusion holds even after considering model endogeneity. The reduction in systemic risk is attributed to increased bank competitiveness, which is driven by lower marginal costs resulting from digital transformation. The effect of digital transformation on systemic risk is heterogeneous, being more pronounced in large commercial banks, those without fintech subsidiaries, and systemically important banks. The study uses data from 2013 to 2021, creating a three-dimensional indicator system for bank digital transformation (cognitive, organizational, and product). Empirical analysis shows that digital transformation reduces systemic risk through the mechanism of increasing bank competitiveness, with the reduction in marginal costs being the key factor. The study also explores the heterogeneity of the effect of digital transformation on systemic risk across different bank sizes and transformation modes. The results support the hypothesis that digital transformation reduces systemic risk by enhancing bank competitiveness. The study concludes that digital transformation helps reduce systemic risk by improving bank competitiveness, which is crucial for the stability of the banking industry. The findings contribute to the understanding of the mechanisms by which digital transformation affects systemic risk and provide insights for improving the path of bank digital transformation and maintaining financial stability.