At long last, Game of Thrones has returned for its final season! In honor of the ending of this epic series, let’s take on another hypothetical from the land of Westeros and beyond.
Last time we played a game of “Which Risk Manager Would You Hire?” This time we are sticking close to our banking roots to identify the biggest risks facing the richest and strongest bank in the Free Cities: The Iron Bank of Braavos.
First, a little background.
Founding: According to author George R.R. Martin, the Iron Bank had roots similar to many community financial institutions. It was formed by local craftsmen, tradesmen, and other small business owners to lend to other small business owners so they could form and grow their own businesses. The bank’s founders pooled their funds and stored them in a forgotten Iron Mine with one entrance and hired guards. However, unlike modern FIs, the original founders were rivals and suspicious of each other. They eventually moved past these suspicions as the bank grew more successful, and the founders gave up their old businesses to focus on the bank.
Eventually the bank moved to “grander quarters,” though the original mine still functions as a “depository and historical artifact.”
Link to explanation: https://www.youtube.com/watch?v=gb75OHM8E5Y
Value proposition: “If you are an aspiring merchant, you come to us to buy ships and goods. If you are an aspiring shopkeeper, you come to us to buy your shop. Whatever you need in this world, we are the conduit. Even a throne can be yours if you are an aspiring king, or stay yours if you are already sitting on one. Just ask House Lannister of Westeros.”
Business model: The Iron Bank is a lending powerhouse, often funding both the Iron Throne and rival throne seekers. Even other banks borrow from it. The Iron Bank is known for funding the enemies of rulers who don’t pay their debts. Everyone fears the retribution of the bank. Or, as it’s commonly put: “The Iron Bank will have its due.”
Leadership: The most well-known banker is Tycho Nestoris, who meets with a variety of Iron Throne wannabes. Unlike the fiery rulers vying for the throne, Nestoris is a polite and dignified man of logic and reason. When mistakenly addressed as “lord,” he keeps it real, pointing out that he isn’t a king or lord, just a regular bank employee.
As he tells Stannis Baratheon: “Across the Narrow Sea your books are filled with words like ‘usurper’ and ‘madman’ and ‘blood right.’ Here, our books are filled with numbers. We prefer the stories they tell. More plain. Less open to interpretation.”
Definitely sounds like a mega bank.
Now that we know a little more about the Iron Bank, let’s take a look at some of the most prominent risks facing this storied enterprise because it wouldn’t be Game of Thrones without a whole lot of risk.
Reputation is everything to the Iron Bank. Its systems work because everyone, from merchants to kings, fears the consequences of failing to pay back the bank.
As Tywin Lannister puts it: “One stone crumbles and another takes its place and the temple holds its form for a thousand years or more. And that’s what the Iron Bank is, a temple. We all live in its shadow and almost none of us know it. You can’t run from them, you can’t cheat them, you can’t sway them with excuses. If you owe them money and you don’t want to crumble yourself, you pay it back.”
Sounds a little more like a loan shark than a bank, but I guess that’s just how banking goes in Westeros.
Like any financial institution, credit risk is key. Here are just a few outstanding loans and write downs that pose risk.
- Stannis Baratheon. The Iron Bank funded Stannis Baratheon in the Battle of the Five Kings after Baratheon and Ser Davos make their case. They argue that Baratheon is the bank’s best bet for getting its money back from the Lannisters since there will be chaos and inept leadership on the Lannister side in the form of Cersei, Jaimie or Tomlin Lannister when Tywin Lannister passes. When Baratheon dies after attempting to take Winterfell, the Iron Bank loses its investment.
- The Iron Throne. The throne owes several thousand Gold Dragons, borrowed to balance the books when Petyr “Littlefinger” Baelish was Master of Coin.
- The Lannisters. The Lannisters owe the Iron Bank “a tremendous sum,” and their gold mines were tapped out three years ago. Fearing that the bank will fund Daenerys Targaryen’s invasion of Westeros, Cersei Lannister promises to pay her family’s debt within a fortnight and does so by taking out the wealthy Tyrell family and making the single largest debt payment in the Iron Bank’s history, bringing new meaning to the phrase “A Lannister always pays his debts.” As a result, the bank re-extends credit to the Lannisters and doesn’t raise interest rates. It also chooses not to back Daenerys. Will that pay off in the long run?
Reduced fee income. Daenerys Targaryen, “Breaker of Chains,” is also a breaker of the bank. When she freed the slaves of Mereen and other cities, she dried up a profitable revenue stream for the bank, which had profited from the slave trade. What will she do next and how will it impact the bottom line?
Reliance on an outdated technology. The bank has kept its first vault because it “did not become the world’s greatest depository of wealth by wasting assets, no matter how minor.” That includes the original iron mine, which continues to be used as a minor vault. While penny pinching is an admirable quality, is maintaining such a small and old facility really worthwhile?
A walking problem. The Iron Bank has grown and thrived as human rivals have battled for the throne. Hunger for power (and the interest on the money borrowed) has fueled the bank. But what happens when business doesn’t go as usual?
I’m talking about a huge threat that most institutions seem happy to ignore: hordes of White Walkers ready to breach The Wall.
Is the Iron Bank prepared to deal with the economic and operational issues a White Walker invasion could cause? The bank traditionally benefits financially from wars, but the Army of the Dead is unlikely to borrow money - or repay it.
Then there are the business continuity issues. Faced with an unprecedented enemy (not to mention two fiery dragons at the beck and call of one army, and an ice dragon fighting for another), the potential for destruction, as well as business disruption, is extremely high. Winter is coming.
Regardless of what exactly happens, the resolution of Game of Thrones will have a huge impact on the Iron Bank’s 2019 performance—and even its future as an institution. Understanding these risks will be key to mitigating them and taking advantage of any opportunities, maybe even hopping on the Daenerys Targaryen/Jon Snow bandwagon. We’ll just have to see.
Now my watch begins.