NCUA Board Proposes Ending Special Reserve for Nonconforming State Credit Union Investments

The NCUA Board is proposing to eliminate the special reserve that federally insured, state-chartered credit unions must establish for nonconforming investments, a requirement in place since the 1980s. The proposal, published as FR Doc. 2026–21509 under RIN 3133–AG21 in the Federal Register of 21 October 2026, would amend 12 CFR parts 702, 703 and 741. Comments must be received by 21 December 2026.

Part 741 governs the requirements for obtaining and maintaining federal share insurance and applies to federal credit unions, federally insured state-chartered credit unions (FISCUs) and institutions applying for insurance under Title II of the Federal Credit Union Act. Section 741.3 currently requires a FISCU to establish a special reserve when it makes investments beyond those authorized for federal credit unions and the book value of the investment exceeds its market value, or when market value cannot be determined. The National Credit Union Administration says the intended effect is to reduce unnecessary compliance and administrative burdens for state-chartered insured credit unions without diminishing its ability to protect the National Credit Union Share Insurance Fund.

A rule dating from the 1980s

The agency has required a special reserve for nonconforming investments since the 1980s, when it was described as a basic and longstanding safety and soundness standard established as a condition of insurance and designed to control risk to the share insurance fund. The Board last amended the FISCU requirements in 1999, when it renamed the accounts “Investment Valuation Reserve Account” and “Investment Valuation Reserve” as “Appropriation for Non-conforming Investments” to reflect their function and composition under generally accepted accounting principles.

The Board now argues the reserve is no longer necessary for safety and soundness. In its view, subsequent changes to accounting standards have limited the requirement’s applicability, the reserve does not in practice provide additional loss-absorbing capacity, and accounting rules now require more investments to be carried at fair value rather than book value. The agency also notes that under generally accepted accounting principles the special reserve is already considered part of undivided earnings, so removing the appropriation account should have no prompt corrective action implications.

Only seven credit unions affected

According to the proposal, only seven FISCUs currently report a special reserve because of a nonconforming investment. Given that limited applicability, the Board does not believe the provision is necessary for safety and soundness. The amendments would:

• Revise § 703.1(b)(6) to restate the exclusion for investment activity by state-chartered credit unions.
• Remove from § 702.104(b) the reference to an appropriation for non-conforming investments among the elements included in the definition of risk-based capital.
• Remove § 741.3(a) and redesignate paragraphs (b) through (g) as paragraphs (a) through (f).

Two questions for commenters

The Board asks whether it should consider alternatives to addressing nonconforming investments, such as assigning a higher risk weight under part 702 for FISCUs subject to risk-based capital requirements instead of requiring a reserve, or addressing safety and soundness risks through the supervisory process. It also asks whether the small number of FISCUs holding such reserves reflects a disincentive created by the requirement, and whether FISCU investment activity would materially change if the proposal were adopted as final.

The Office of Information and Regulatory Affairs has determined the proposal is not a significant regulatory action under Executive Order 12866, and the Board states it is not an Executive Order 14192 regulatory action. The agency certifies that the rule would not have a significant economic impact on a substantial number of small credit unions, which it defines as those with under $100 million in assets, and it concludes that the change creates no new information collection under the Paperwork Reduction Act and no effect on states under Executive Order 13132.

Comments may be filed at regulations.gov under docket NCUA–2026–1886, by mail to Melane Conyers-Ausbrooks, Secretary of the Board, 1775 Duke Street, Alexandria, Virginia 22314–3428, or by hand delivery. Questions may be directed to Rachel Ackmann, Senior Attorney in the Office of General Counsel, at (703) 548–2601. The proposal was adopted by the Board on 19 October 2026.

The change matters most for the small group of state-chartered insurers that still carry the account, but its wider significance is procedural: it would strip a reserve obligation that applies only to FISCUs while leaving federal credit union investment limits untouched, and it would align the insurance rules with accounting treatment the Board says has already overtaken the requirement.

Source: Federal Register, Vol. 91, No. 202, 21 October 2026, Proposed Rules, p. 66532 (official reference: FR Doc. 2026–21509).