Abstract: Determining the loan-to-value ratio is one of core financing works, so controlling the ratio is the main way to manage risk for banks. In this paper, the model of the ratio is constructed, considering the risk of price fluctuations, the firm’s ability of reducing emissions, default risk and macroeconomic risk. The research shows that which is larger between the optimal ratio and the ratio of the largest risk that the bank is willing to bear doesn't depend on the completion of CERs, initial price and the degree of loan loss, but on the default probability, the interest rate, the rate of capital cost, the loan time, and how probably the bank is willing to take the largest loss. Then, we use the data of the European Climate Exchange to analyze numerical examples.

Key words: the loan-to-value ratio, the right to yields for CERs, mortgage financing, carbon financing