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Chapter 47
🕑 Added 2025-01-28 21:05:12 +0000 UTC“Heavens, I must apologize for my earlier lack of clarity.” Aegor waved his hand with a casual smile. “Let’s start over. I’ll explain my plan’s feasibility and merits with a game. You’re familiar with the Iron Bank, yes?”
“Of course.”
“How does it operate?”
“It gathers the surplus wealth of Braavosi citizens and loans it to those in need,” Tyrion replied promptly, before adding, “But it’s not run by an individual like your scheme. It’s governed by Braavos’ ruling elite.”
“That’s true, but let’s leave the differences aside for now. First, let’s use role-playing to explore how it works.” Aegor put away the documents on the table and placed a single silver coin before Tyrion. “I’ll play the role of an ordinary Braavosi citizen, and you represent the Iron Bank. Imagine that some wealthy citizens in Braavos have collectively deposited ten thousand gold dragons with you.”
Tyrion glanced at the silver coin, which now symbolized the ten thousand dragons. His previously disapproving expression softened slightly. While he was an easygoing man, he was unwavering in his disdain for fraud. Even for a friend, he wouldn’t condone deceit. This only made him more curious about how Aegor planned to convince him.
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Aegor’s tone shifted to a more serious one. “I, an ordinary Braavosi, plan to open a shop. After running some calculations, I estimate that I’ll need ten thousand gold dragons to start, but I don’t have the funds. So, I come to you, the Iron Bank, to borrow the money.”
Aegor picked up the silver coin and moved it from Tyrion’s side of the table to his own, signaling that the loan had been made. “I take the ten thousand dragons and use it to rent a shop, buy tools, and get everything set up.” He moved the coin again, placing it on an unoccupied part of the table, signifying the money had been spent. “That’s the end of the first round of the game. So far, it’s simple: I owe you ten thousand dragons, and you owe your depositors the same amount. But now, something interesting happens.”
“Oh?” Tyrion raised an eyebrow, watching as Aegor picked up the coin from the unoccupied side of the table and brought it back to the bank’s side. “What does that mean?”
“This illustrates the key difference between Braavosi and Westerosi practices. In Braavos, surplus money isn’t hoarded at home; it’s deposited in the Iron Bank. This seemingly minor cultural habit is critical in the game of money.” Aegor’s lips curled into a smile, clearly pleased with his example. “After I spent the ten thousand dragons, the recipients of that money deposited it back into the bank—you.”
Tyrion began to sense where this was heading but remained unsure of the specifics.
“Then, I hit a snag with my business plan. I realize that while I’ve set up my shop, I’ve run out of funds for raw materials. So, I come back to you and ask for another loan of ten thousand dragons.”
“But you haven’t repaid the first loan yet.”
“Exactly. If you don’t lend me the money, I’ll have to declare bankruptcy. You’ll get an incomplete shop that’s of no use to the Iron Bank. The only way to ensure repayment is to lend me more and hope my shop succeeds.”
“That sounds like extortion.”
“It’s not extortion. It’s precisely why Braavos is the wealthiest and strongest of the Free Cities!” Aegor raised his voice, moving the silver coin back to his side and placing it once again on the unoccupied part of the table. “With the second ten thousand dragons I borrow, I fully open the shop and start doing business. Do you understand what just happened?”
“You used ten thousand dragons to fund a business that requires twenty thousand dragons to operate.”
“Exactly. And now I have a functional shop that can repay the loan plus interest. You, as the bank, recover both loans. The depositors earn interest on their savings, and everyone benefits. But here’s the question: where did that additional ten thousand dragons come from?”
Tyrion pondered this for a moment before carefully responding, “It came from the risk I took—lending you more money before you’d repaid the first loan.”
“Exactly. That additional ten thousand, which didn’t technically exist, is the manifestation of the risk you took.” Aegor’s smile widened. “But this brings us back to your earlier concern: what happens if the depositors suddenly demand all their money back?”
“The Iron Bank wouldn’t only have ten thousand dragons.”
“Correct.” Aegor placed more coins on the table. “The bank would have ample funds. If someone needed to withdraw ten thousand dragons, you’d give it to them. However, if all depositors demanded their money simultaneously, then what?”
Tyrion instantly recalled their earlier discussion, now with Aegor playing the interrogator. “That’s a liquidity crisis. It’s what the Iron Bank, or any financial institution, must avoid at all costs.”
“How do they avoid it?”
Realizing Aegor had reversed the roles to make him think like a banker, Tyrion smirked and took the bait. After a brief pause, he replied, “Interest and trust. Interest incentivizes people to deposit money, while trust in the bank’s stability reassures them they can withdraw whenever needed. As long as depositors feel secure, they won’t panic and rush to withdraw their savings.”
“Well said. But what if my shop fails to turn a profit?”
Tyrion’s brows furrowed. After a long silence, he practically growled out the answer. “Then I wouldn’t lend you a single copper! Before issuing loans, I’d have my employees conduct a thorough evaluation to ensure your business plan is viable.”
Tyrion’s response was sharper and more comprehensive than Aegor had anticipated. It wasn’t surprising; the Lannister dwarf was one of the most astute minds in Westeros. Encouraged by his engagement, Aegor pressed further.
“So, we conclude that the bank, the depositors, and the borrower can collectively achieve more than any of them could individually. By leveraging trust and future potential, Braavos built fleets and cities far beyond its apparent financial means. Other Free Cities tried to replicate this system, but without Braavosi cultural habits—like always depositing spare money—they couldn’t compete with the Iron Bank.”
Tyrion was silent, his mind racing to process the implications of Aegor’s explanation. For once, the dwarf felt as though his sharp intellect wasn’t enough. After several moments of thought, he admitted, “I can’t find fault with your logic.”
“But our game isn’t over yet,” Aegor said, leaning forward with a glint of mischief.
“It isn’t?” Tyrion looked up in surprise, then froze as realization dawned. “Seven hells... you’re planning to borrow even more, aren’t you?”
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