Speaking to the Business, Lloyd Blankfein, chief executive, said he was concerned about a "backlash" to the sub-prime markets.
"There will be a regulatory concern about the sub-prime crisis, but don't throw the baby out with the bathwater," he added.
Mr Blankfein's Goldman has recorded increased profits in the third quarter and has been performing the best out of all the investment banks.
But Mr Blankfein called on regulators to exercise caution despite the worst declines in the US housing market since the early 1990s.
"Housing is one of the US's great institutions, so don't kill home ownership," he warned.
The comments follow the news that UBS believes the credit crunch will only get worse.
The Swiss bank announced there would be further problems in the sector saying that it remained exposed to further problems in the housing market.
"As a result, UBS is not assuming that the [fourth] quarter will continue as positively as it has begun, or that the current difficulties will be resolved in the short term," the bank said in a statement.