• Goldman Sachs (GS) CEO David Solomon says he doesn't see "a lot of risks in the credit system" right now, pointing to solid mainstream credit performance.
  • However, risks are growing in private credit, leveraged nonbank investors, and AI-related debt financing, areas outside traditional bank balance sheets.
  • The Fed and analysts flag notable vulnerabilities, including high asset valuations, concentrated hedge-fund leverage, and insurers' exposure to illiquid credit.

A Constructive Credit View, with Caveats

Goldman Sachs CEO David Solomon struck a relatively optimistic tone on the credit system this week, saying he currently sees "not a lot of risks." His comments, made in a recent interview, are broadly consistent with still-solid U.S. credit performance: bank lending is expanding, corporate bond and equity financing are growing, and defaults remain near the lower end of their historical range. The Fed's July 2026 meeting materials supported that view, noting leveraged-loan defaults eased slightly and private-credit defaults were little changed.

But Solomon's assessment is conditional and near-term, not a blanket all-clear. The Fed still characterizes overall financial-system vulnerabilities as "notable," citing elevated asset valuations, very high and concentrated hedge-fund leverage, and insurers' growing exposure to riskier, less-liquid credit assets. And as traditional banks remain resilient, the pressure points are increasingly shifting to nonbank channels: private credit, highly leveraged investors, lower-quality corporate borrowers, and debt tied to the AI-infrastructure boom.

The Private Credit Wild Card

Private credit is the clearest counterpoint to Solomon's calm view. A Boston Fed analysis found that direct transmission from stressed business-development-company portfolios to bank solvency appears limited at current exposures, but it flagged rising payment-in-kind interest and spread compression amid softening borrower credit metrics as warning signals. Meanwhile, companies are increasingly turning to private lenders, with funds often partnering with banks to deploy capital, a trend seen across Europe and the U.S.

"We have a constant balance with the banks, which really we consider our partners and not only our binary competitors," said Cecile Mayer-Levi, head of private debt activity at Tikehau Capital (TKKHF), at a recent conference. "It's much more of a convergence between the two solutions." But for some borrowers, especially smaller businesses, private-credit financing has become harder to obtain, even as public credit markets remain more accommodating—a divergence the Fed is watching closely.

AI: The Next Credit Theme

AI capital expenditure is becoming a material credit-market theme. Goldman estimates that roughly one-third of 2026 AI-related capital expenditure could be debt financed, which could affect bond yields, private lending, and investor portfolios as issuance grows. This builds on a broader infrastructure boom, exemplified by KKR (KKR)'s recent €22 billion ($24.6 billion) deal for a majority stake in Telecom Italia (TIT.MI)'s Netco, highlighting the scale of private capital flowing into tech and infrastructure.

The risk is that if AI-related projects fail to generate expected returns, or if financing costs rise, the debt could become a stress point. "It's a great country to invest here because there are a lot of very good companies and the market here is not as competitive as other markets," said Giampiero Mazza, head of Italy at CVC Capital Partners (CVC.AS), illustrating the appetite for such investments.

Policy and Historical Context

The most important policy development is the pending U.S. overhaul of large-bank capital requirements, including a revised Basel III framework and changes to the G-SIB surcharge. The March 2026 reproposal is intended to recalibrate capital rules and systemic-risk measurement, and finalization is expected to be a major event for Wall Street banks. Interestingly, this has created an unusual split among major banks: JPMorgan (JPM) and Bank of America (BAC) contend the proposed funding-related change would reduce their expected relief, while Goldman and Morgan Stanley (MS) could gain an estimated $1 billion to $2 billion of incremental capital capacity, according to Reuters.

Historical context helps frame Solomon's remarks. The 2008 crisis showed how a seemingly healthy credit environment can deteriorate rapidly when leverage and asset-price declines reinforce each other. The 2023 regional-bank failures demonstrated that interest-rate risk and confidence shocks can destabilize institutions even when corporate defaults are low. The current cycle differs because a growing share of lending and leverage sits in nonbank channels, where valuations and interconnectedness are less transparent.

What Could Challenge the View?

Solomon's view would be most quickly challenged by a sustained rise in corporate defaults or distressed exchanges, widening high-yield and leveraged-loan spreads, rising PIK usage or redemption pressure in private-credit funds, a material weakening in employment or consumer spending, or an abrupt change in rates, liquidity, or geopolitics. The balanced interpretation: traditional credit indicators are healthy enough to justify confidence, and Goldman itself is financially strong—its Q2 2026 record net revenue of $20.34 billion, net earnings of $6.63 billion, and CET1 ratio of 12.9% underscore that. But the system's risk has become more dispersed and harder to observe. The crucial question is whether fast-growing private and nonbank credit channels can withstand a genuine downturn without transmitting losses back through the financial system.

Correction: An earlier version of this article misstated the Boston Fed's analysis regarding transmission; it has been updated to reflect the current limited exposure assessment.