The U.S. federal government will keep about $1.2 billion in payments collected to backstop money market funds even after its insurance program ends on Friday, a U.S. Treasury official said.

The money will stay with the Treasury, the official told Reuters on Thursday, speaking on condition of anonymity because the decision has not been officially announced.

The payments, from asset managers, were essentially insurance premiums used to fund guarantees the Treasury put in place a year ago to prop up the $3.5 trillion money market fund industry.

At the time officials were concerned investors would lose confidence in the funds after privately held Reserve Primary Fund broke the buck and saw its net asset value fall below the traditional $1 per share.

But while some funds have required additional support from their parent companies since then, no money fund has needed support from the Treasury. Widely considered a success, the program is set to expire on Friday amid a broader debate on how to regulate money funds going forward.

One idea in the money fund industry has been the creation of a private backstop, perhaps using the $1.2 billion in premiums collected by the government.

Now that does not seem in the cards, however. Instead, the official said the money will stay where it was deposited over the past year in the Treasury's Exchange Stabilization Fund, which had $52.4 billion in assets as of July 31.

It was created in the 1930s for purposes such as buying and selling gold and has since been used for other purposes such lending to Mexico by the Clinton Administration in the 1990s.

(Reporting by Ross Kerber; editing by Andre Grenon)

Investment