GOT/ASOIAF: Ruler Beyond the Ice

"Oh gods, I must apologize for my unclear explanation earlier." Aegor waved his hand dismissively. "Let's start over. I'll use a game to explain the feasibility and advantages of my plan. You know of the Iron Bank, correct?"

"Of course," Tyrion replied.

"Then tell me, how does it work?"

"It collects surplus money from the people of Braavos and lends it to those in need," Tyrion said, then added, "But it's not the same as what you're proposing. The Iron Bank is managed by the rulers of Braavos, not by an individual like you."

"That's true, but we'll address that difference later. For now, let's focus on how it works through a little role-playing." Aegor set aside the two certificates lying on the table, pulled out a silver coin, and placed it in front of Tyrion. "I'll play the role of an ordinary citizen of Braavos, and you'll represent the Iron Bank. Let's say several wealthy residents of Braavos have deposited 10,000 gold dragons with you."

Tyrion glanced at the single silver coin representing 10,000 gold dragons. His skeptical expression softened slightly. He was an easygoing man but principled enough that he would never condone fraud, even if it came from someone he admired. That made him even more curious about how Aegor intended to convince him.

---

Aegor's tone turned serious. "I'm an ordinary Braavosi planning to open a shop. After some initial calculations, I estimate I'll need around 10,000 gold dragons to start, but I don't have the money. So, I come to you for a loan."

Aegor picked up the silver coin he had placed in front of Tyrion and returned it to his own side, signaling the start of the game.

"I then use the 10,000 gold dragons to rent a storefront, purchase tools, and prepare to open my shop." Aegor placed the silver coin on the far side of the table, representing the funds spent. "The first round of the game ends here. So far, it's simple enough. I owe you 10,000 gold dragons, and you owe the original depositors the same amount. But then something interesting happens."

"Hmm?" Tyrion leaned forward, watching as Aegor picked up the silver coin he had set aside to represent his expenses and placed it back on his side. "What does this signify?"

"This is where the people of Braavos differ from those in Westeros," Aegor explained. "In Braavos, people don't hide their surplus wealth under their floorboards or in cellars. Instead, they deposit it in the Iron Bank. This seemingly small habit is crucial in the game of money." Aegor's lips curled into a slight smile, clearly pleased with his explanation. "Once I spend those 10,000 gold dragons, the person who earned them—through rent or trade—deposits that money with you, the Iron Bank."

"Huh..." Tyrion frowned as if he were beginning to piece something together, though the picture was still unclear.

"At this point, my business plan hits a snag," Aegor continued. "I realize that while I've set up the shop, I haven't yet purchased the raw materials I need. I still require another 10,000 gold dragons, so I come to you for another loan."

"But you haven't repaid your first loan," Tyrion pointed out.

"Exactly. But if you refuse me, I'll have no choice but to declare bankruptcy, leaving you to seize my half-finished shop as collateral." Aegor smiled again, his tone calm. "But that storefront I rented and the tools I purchased are useless to the Iron Bank. In other words, the only way for you to recover your initial loan is to lend me more money and hope my shop succeeds."

"That sounds an awful lot like extortion."

"No, it's not extortion. This is why Braavos is the wealthiest and most powerful of the Free Cities," Aegor countered, his voice rising slightly for emphasis. He took the silver coin back to his side and placed it on the far end of the table. "I use the additional 10,000 gold dragons to purchase materials and officially open the shop. Do you see what's happening now?"

"You're telling me that with just 10,000 gold dragons, you managed to create a business worth 20,000 gold dragons?"

"Precisely. By borrowing 10,000 gold dragons twice, I've set up a shop worth 20,000. Now, the shop generates income, allowing me to repay the principal and interest on both loans. You, as the Iron Bank, recover your investment with profit, and the original depositors receive their interest. Everyone wins!" Aegor leaned closer, fixing Tyrion with a pointed look. "But here's the real question: where did the extra 10,000 gold dragons come from?"

Tyrion mulled over the question for a long moment before answering cautiously, "It's because I, as the Iron Bank, took a risk. While still owing the original depositors, I lent out their money again to someone who hadn't repaid their initial debt." His voice grew sharper as he added, "That extra 10,000 gold dragons doesn't actually exist. It's just the embodiment of the risk I took."

"Exactly," Aegor said approvingly. "Now let's revisit your earlier concern: what happens if one of the original depositors suddenly wants to withdraw their money while it's tied up in my loans?"

"The Iron Bank doesn't keep just 10,000 gold dragons on hand," Tyrion replied without hesitation.

"Correct." Aegor took out a small handful of coins and placed them before Tyrion. "The Iron Bank's vaults hold substantial reserves. If a depositor asks to withdraw 10,000 gold dragons, you can simply pay them out of the reserves. But here's the catch: all the money in your vault belongs to the depositors. What happens if every single depositor demands their money back at the same time?"

Tyrion's brow furrowed deeply as he recalled their earlier conversation. The question was now reversed, with Aegor asking and Tyrion on the defensive. Clever bastard, Tyrion thought, realizing the role-reversal was intentional. Still, he prided himself on his intellect and enjoyed mental challenges. He decided to play along.

After a brief pause, Tyrion answered, "Interest and trust. The promise of interest encourages people to deposit their money, while trust in the Iron Bank's strength ensures they don't worry about accessing their funds when needed. Unless they have an immediate need for the money, most depositors won't withdraw it out of fear."

"Good answer," Aegor acknowledged with a nod. "But what happens if my shop fails to turn a profit?"

Tyrion's expression darkened. After a long silence, he finally growled through clenched teeth, "Then I wouldn't lend you a single coin more. I'd send my employees to inspect your business before granting a loan. If they determine your shop is unlikely to succeed, that's the end of it."

Tyrion's response was sharper than Aegor had anticipated, further proof of the dwarf's keen mind. Still, Aegor pressed on, undeterred. "Exactly. Before granting a loan, the Iron Bank assesses the risks. That's why it can use 10,000 gold dragons to achieve what would otherwise require 20,000. Through a series of seemingly complex but fundamentally simple operations, we've created 10,000 gold dragons that didn't exist before. And the reason this works is because of trust, trust in my shop's potential to generate profits, and trust from the depositors that you can safeguard their money."

---

"Rather than calling the extra 10,000 gold dragons a manifestation of risk," Aegor concluded, "it's more accurate to call it a manifestation of trust, trust between the bank, the depositors, and the borrowers. This trust, and the confidence it breeds, is what allows Braavos to use limited resources to construct grand fleets and magnificent cities far beyond its actual financial means. It's why Braavos rose to become the wealthiest and most powerful of the Free Cities. Other cities have since tried to replicate the model by establishing their own banks, but they lack the same culture of trust that encourages Braavosi to deposit their wealth. That's why they can't compete with the Iron Bank in terms of capital."

Tyrion was silent, overwhelmed by the novel concepts and intricate rules Aegor had introduced. For the first time in a long while, he felt out of his depth. After a long moment, he admitted to himself that he couldn't poke any obvious holes in Aegor's reasoning.

But Aegor wasn't finished. Sensing Tyrion's hesitation, he leaned forward and asked with a sly smile, "Do you think our game is over?"

"Not yet?" Tyrion raised his head, staring at his adventurer friend. Then, as realization dawned, his eyes widened in disbelief. "Seven hells... you still want to borrow more money!?"