advantages of arbitration

The array of commercial disputes that can involve banks generally fit into the generic
classification of arbitrable disputes.

However, some cases are not good candidates for arbitration, particularly constitutional or public
policy test cases where one or more of the parties seeks to establish precedent in support of its
point of view. These cases are not many, but are often of great value, both monetarily and in
terms of policy.

One of the main advantages of arbitration over

litigation is cost and time savings. Savings of 20 to 50
percent in legal fees over litigation have been reported
for arbitration. Total savings in processing disputes
under a bank arbitration program have been estimated
at 20 to 30 percent.

Hours to Days
Arbitration hearings can last anywhere from a few
hours to many days depending on the size of the case.
However, arbitration usually takes less time to reach
resolution than does litigation, particularly considering
the congested court calendars in most areas of the country.

Most arbitrations, particularly those using an administering agency and comprehensive rules,
take less than a year from the filing to resolution.

Private and Informal

The cost and time savings are the result of two factors-- arbitration is private and arbitration
procedures are generally less formal than litigation procedures.

Because arbitration is private, scheduling of hearing dates does not depend on the vagaries of a
crowded court calendar. Hearings are scheduled at the convenience of the parties and the
arbitrators. Arbitration generally involves fewer, if any, prehearing matters that often prolong
court proceedings. There are usually no extensive preheating discovery procedures, and motion
practice is generally restricted.

Less Discovery
Reduced discovery may not be a problem for banks in suits with borrowers, because banks
usually acquire a great deal of information about a borrower as part of the loan approval and loan
administration processes. Thus, they may be willing to forego extensive discovery opportunities
in exchange for the speed and ease of resolution which arbitration offers.
Moreover, many lenders have complained that plaintiffs' attorneys use the extensive discovery
procedures available through the courts to harass the lenders and their top executives and
directors. The reduced discovery available in private arbitration may discourage this practice.

Although the direct costs of arbitration are generally higher than the direct costs of litigation, the
cost savings in arbitration is realized from reduced attorneys' fees and expert witness fees.

Costs
The direct costs of arbitration can include:

The arbitrator's fees. The arbitrator's fees for large, complex cases that require multiple hearing
dates can be quite high, as the arbitrators' fees can be when a three-person panel, rather than a
single arbitrator, is chosen.

Expenses for arbitrator travel and hearing room rental.

The costs of site inspection or an expert appointed to assist the arbitrator.

A court fee, usually nominal, for filing a petition to confirm, vacate or correct the arbitrator's
award, or for bringing an action for provisional relief or to stay pending court proceedings.

Legal Fees
The cost savings in reduced attorney fees is a result of the less formal procedures usually
employed in private arbitration. The attorneys spend less time attending depositions and
answering interrogatories; participating in pretrial conferences and other hearings; preparing
pretrial memoranda; and engaging in pretrial motion practice.

Private arbitration generally requires only one prehearing conference of one to two hours. The
inapplicability of formal civil procedure and evidence rules allows the disputants to realize
further savings because of the lack of need for pretrial motions, papers, and hearings to consider
pretrial motions.

The nonrefundable initial filing and administrative fees associated with arbitration, particularly
the sliding fee schedule, may also deter widely speculative claims and encourage plaintiffs to be
more reasonable in their initial demands. They may also deter some plaintiffs from bringing
nuisance claims or strike suits.

Experts
Another important advantage of arbitration is the use of experts as dispute resolvers. Private
arbitration allows the parties to choose the dispute resolver--something litigation does not allow.
Thus, a person with knowledge and experience in the industry or area in which the dispute arose
may be employed as arbitrator.

This situation increases the likelihood that the award will be in keeping with industry or local
custom and decreases the likelihood of "runaway" awards or awards not conforming to
established practice or law. Private arbitration allows financial institutions to avoid the
uncertainty of presenting claims to juries, which many institutions view as being sympathetic to
borrowers. Some jurisdictions also do not allow punitive damages in arbitration, thus further
reducing the likelihood of "runaway" awards.

Privacy
Privacy and confidentiality are other important advantages of arbitration. Generally, the public
and the media are not legally entitled to participate in, observe or report on a private arbitration,
without the consent of the parties.

Privacy can be an important advantage of arbitration over litigation where the dispute involves
allegations of fraud, malpractice, or another practice or activity that could hold a party up to
ridicule or embarrassment.

Finality
Another advantage to private arbitration is its finality. Generally, private arbitration awards are
binding on the parties, and cannot be overturned except on narrow grounds.

Arbitration also tends to encourage earlier and more reasonable settlements. The reasons for this
phenomenon are not fully understood, but they may have something to do with the tendency of
most people to put off decision-making until the eve of some important event. Thus, the closer a
deadline approaches, the more inclined a plaintiff and plaintiff's counsel may be to review their
case critically.

Arbitration generally creates earlier deadlines than litigation. This may spur plaintiffs to earlier
settlement decision.