Morgan Stanley, the American investment bank, is being sued for allegedly discriminating against borrowers from America’s ethnic minorities.

The National Community Reinvestment Coalition (NCRC), a “fair lending” organisation in the United States, has filed a lawsuit in Washington against the bank claiming that it has deliberately failed to offer credit facilities to “African-American, Latino, Native American, Asian and Pacific Islander communities” solely on the ground of race.

It also brought the lawsuit to the attention of the US Securities and Exchange Commission, because the action also alleges that Morgan Stanley breached disclosure rules by failing to reveal to whom they had offered mortgages. The bank vehemently denies the allegations.

David Berenbaum, executive vice-president of the NCRC, told The Times that he had “smoking gun” evidence in the form of Morgan Stanley’s lending manual. It allegedly stated that the bank had operated a policy where it “didn’t even get to the point of looking at credit histories”.

The allegations are made against Saxon, a subsidiary of Morgan Stanley. Saxon is the bank’s only sub-prime lending division, which it acquired in December. The NCRC claims that once Morgan Stanley bought the sub-prime lender, it increased the minimum size of mortgages that it was prepared to lend. According to the NCRC, the move to offer mortgages above $100,000 and the bank’s refusal to lend in certain geographical areas, such as nonurban communities in Alaska, constituted racial discrimination. An NCRC spokesman said that many members of the African-American or Latino communities live in properties worth less than $100,000. For this reason, the coalition claims, any move by the bank to not lend on properties below $100,000 constituted discrimination.

In a statement, Morgan Stanley said: “We are reviewing NCRC’s complaint. Morgan Stanley takes these allegations very seriously. The mortgage lending policies of Morgan Stanley and its affiliates do not discriminate on the basis of race or national origin. We are confident the allegations will prove meritless.”

In America, lenders are required to be fair under the Equal Credit Opportunities Act and the Fair Housing Act. Lawyers would have to prove that Morgan Stanley denied credit solely on the ground of race and disprove that it had chosen for business reasons not to develop its operations at the bottom end of the mortgage market.

The NCRC is seeking financial compensation, remedial action for borrowers who have been declined mortgages and the suspension of any discriminatory policies.

This month, Decision One, an American subsidiary of HSBC, faced accusations that it charged higher mortgage rates to black people.

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