IN NEW York, London, Singapore and other major business locations, the most pressing enabling issue facing economies is how to get banks to lend. Right now, Singapore banks are hampered mainly by a psychological fear of lending. But elsewhere, and in America and Britain in particular, the issue is more existential: Faced with a barrel load of questionable loans and toxic debt, banks must make larger and larger provisions against default, thus reducing their ability to lend. And all this while, bleeding red ink by the bucket. The latest tempest has the Royal Bank of Scotland saying it may have racked up losses of as much as ?28 billion (S$59 billion) in 2008. Not coincidentally, it is from Britain that the newest industry-wide bailout plan has emerged.

The trouble is, it is a path well trodden. The original British plan in October - much praised then - to use taxpayer money to buy stakes in banks failed in the end to unfreeze credit. The promise in the new plan is that it seeks to address this directly. In exchange for insurance against default on loans and other debt instruments, financial institutions will have to agree to lend more money. There are sound reasons for this approach. First, there is the matter of confidence: Sovereign guarantee for debt instruments will make it less likely that these will actually default. Next, if loans are insured, banks can lower their provisions. This will free up funds and make it less urgent for them to raise new capital. Meanwhile, what money that is available can be deployed towards fresh lending. Finally, insuring against default requires less taxpayer money than buying up bad assets.

There are issues to be sorted out, of course. For instance, it is not clear how much protection banks will eventually seek. Over-insurance would only tie up capital that could be better used in other situations. Then, there is the matter of pricing some of the debt instruments - a problem the Americans initially struggled with before the original US bank bailout plan changed shape radically. Because the financial crisis has been so hard to untangle, the British measures will be pored over for signs they will work. Everyone is still feeling their way around the crisis. The American plan has not worked, as financial institutions sucked up the initial stabilisation disbursement of US$350 billion (S$528 billion) but did not increase lending. US President Barack Obama wants the next tranche of funds to address this issue. If this and the British gameplan work, they could well provide a new blueprint for others trying to clean up their banks' mess. Fingers crossed, we hope this time something will click.

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