Officials from several of the nation's top financial institutions will soon release a report aimed at developing alternate dispute resolution mechanisms, or ADR, for the banking industry.

The report, called "Model ADR Procedures and Practices," is a handbook detailing how banks can avoid litigation and its attendant expenses by striking agreements with other banks and with customers.

Banks typically use such mechanisms for cases involving contract disputes, derivatives transactions, money transfers, letters of credit, and check fraud cases.

The report is the result of a banking committee formed at the behest of the Center for Public Resources, a New York-based organization consisting of hundreds of corporate lawyers, legal scholars, and former judges.

Several of the nation's largest institutions, including BankAmerica Corp., NationsBank Corp., and Wells Fargo & Co., already use the procedure extensively.

They are joined on the committee by other spot users of the technique, including Chemical Banking Corp., Bankers Trust New York Corp., and Citicorp.

The driving force behind acceptance of the out-of-court agreements is saving money by avoiding litigation.

Figures on bank industry savings from the technique are unavailable, but according to a 1993 survey of lawyers by the Center for Public Resources, the average savings on each case resolved by an alternative method approaches $1 million. This figure is based on the resolution of 32 cases involving a total disputed amount of about $602 million.

Mediation, one of the two basic alternative mechanisms, is increasingly attractive to financial institutions. Under this process a neutral third party, usually a former judge or a lawyer, serves as an intermediary.

"Mediation is catching on," said Laura Effel, vice president and senior counsel with Chase Manhattan Bank.

"That seems to be the hot item in alternate dispute resolution all over the country."

Aside from helping to avoid litigation, mediation can also preserve customer relationships because it tends to be less adversarial than court battles.

Michael B. Cahill, executive vice president with First Interstate of Texas and a member of the Center for Public Resources banking committee, said in the report that the bank would use mediation in every instance it could, if it could resolve a case more cheaply.

Mr. Cahill wrote that opposing parties must demonstrate good faith in working towards a fair settlement, and that skilled mediators must be used. His bank's use of mediation has grown steadily since 1990 to approximately 40 cases a year.

"We will never, as a matter of policy and practice, reject any request for mediation with any party where these requirements are satisfied" he said.

Some institutions, including BankAmerica, Bank of California, and NationsBank, routinely insert binding arbitration clauses in their commercial loan agreements, the report said.

Binding arbitration is the other principal form of dispute resolution. Its objective is to arrive at a just, final, and enforceable settlement. It has been used extensively by BankAmerica and First Interstate for commercial and consumer loans.

The report said arbitration grew in popularity among banks in California because of a number of publicized and costly jury verdicts there in the 1980s.

But Ms. Effel predicted that use of arbitration will not grow nationwide as on the West Coast because decisions achieved by arbitration could not be appealed.

"Mediation," she said, "is one of the things we emphasized in the report, because that's more acceptable to the to Eastern banks and keeps control of the ADR process. It doesn't risk unpredictable and wrong results."

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