HOW to explain another week of bail-outs, billion-dollar losses and brutal bank sell-offs? Last week, the Irish government announced the full nationalisation of Anglo Irish Bank, the country's third-largest lender. Early this week the British government unveiled a potpourri of measures to stimulate lending, including a guarantee scheme designed to protect banks against losses on bad assets and an increase in its stake in Royal Bank of Scotland (RBS) to 70%. Markets worry that Barclays may also need state support.

On Tuesday January 20th, the French government agreed to provide another €10.5 billion ($13.6 billion) of capital to its biggest lenders. After its predecessor hastily pumped more money into Bank of America last week, the new American administration is working on fresh plans to immunise banks from the effects of their infected assets. The Danes have also reached into their pockets again.

This burst of action comes just weeks after governments shored up the banking system with capital injections and sweeping guarantees for depositors and creditors. Despite howls of protest, that money was not wasted. The assurance that governments will not let important lenders fail continues to keep the fear of bank runs and bankruptcies at bay. In marked contrast to the pounding that their shares have taken since the start of the year, credit-default-swap spreads on bank debt have remained relatively static. Since the fall of Lehman Brothers, default risk appears to have largely shifted from the banks to the governments that back them.

That leaves two puzzles. If governments have restored confidence in the banks' ability to survive, why the renewed rush to intervene? And if governments continue to demonstrate support for the banks, why aren't shareholders also rejoicing? The answer to both questions lies in concerns that not enough credit is flowing. Bankers themselves deny the charge that they are hoarding capital. Jamie Dimon, the boss of JPMorgan Chase, told investors last week that his bank “was making loans all the time”. Analysts at Credit Suisse reckon that British banks have increased their balance-sheets since June.

The problem is that even if individual institutions manage to grow their books, there is still a huge gap in financing capacity to fill. Analysts at Citigroup reckon that domestic banks provided only half of the credit available to British households and companies in early 2008, for example. Foreign lenders are under pressure to focus on their home markets. Last week America's Treasury asked the banks in which it has injected capital to provide monthly reports on their lending activity: it is safe to assume that officials are more interested in loan growth at home than they are abroad. Corporate-bond markets are much livelier than they were but other non-bank sources of finance, such as the securitisation market, remain stagnant.

Replacing this lost capacity would be tough at the best of times. Right now, it is nigh on impossible. Demand for credit is lower, as companies and consumers retrench. Losses are surging as the economic climate worsens. Regions Financial, an American regional bank, reported a record $6.2 billion quarterly loss on Tuesday on souring property loans. Structured products still have the capacity to wound. Shares in KBC, a Belgian bank, plummeted by more than half between January 15th and 20th on concerns that it would take big write-downs on corporate CDOs (collateralised-debt obligations). Even staid custody banks are finding unpleasant ways to surprise: shares in State Street lost almost 60% of their value on Tuesday as it announced hefty losses on bond investments, among other things.

In these circumstances, the natural (and sensible) inclination of banks is to hold on to capital, not to run it down further by ramping up lending. Hence the renewed efforts by governments to free up banks' balance-sheets. Hence, too, the violent sell-offs in many bank shares, as shareholders realise that the price of further intervention may be widespread dilution.

Public ownership may be unpalatable to many but it is just as difficult politically for governments to keep injecting money into banks without wiping out their owners. Tactically, too, the approach of injecting capital in the form of preferred shares rather than common equity, has its limits. The British government converted its preferred shares in RBS into ordinary shares on Monday because the former required such hefty dividend payouts. America's capital injections to date have imposed less onerous terms, but its banks still need a reasonable level of common equity to act as a credible first defence against losses. With share prices so low, any more capital-raising is bound to be hugely dilutive (thereby reinforcing the urge to sell). It may not be imminent or desirable but the spectre of nationalisation haunts the sector.