Bank Consolidation Spurs Loan-Document Systems

Loan documentation systems, dormant after being in vogue in the mid-1980s, are experiencing a vigorous rebirth in the consolidation-happy banking industry.

Personal-computer software systems from companies such as American Management Systems Inc. Arlington, Va.; Coin Banking Systems Inc., Norcross, Ga.; and Formation Technologies Inc., Denver, allow banks to keep abreast of the most current lending rules as they document commercial and consumer loans.

Such systems were originally attractive because they eliminated the need for banks to maintain large inventories of loan forms that often became obsolete as rules changed. The cost savings from documentation systems have run into the millions of dollars at large institutions, experts estimated.

Interstate Effect

But as the long-predicted consolidation of the banking industry begins to take hold and an increasing number of financial institutions extend their reach beyond the borders of their home states, experts said, documentation systems will become increasingly important.

"With all the different state regulations to keep up with, the documentation systems are a must for a bank with a multistate presence," said F. Jay Ward, president of Key Services Corp., the loan servicing arm of Albany, N.Y.-based KeyCorp. "The concept is not new," he said, "but I think we'll see some more original uses of the systems in upcoming years."

KeyCorp, with more than $15 billion in assets, maintains offices in New York, Utah, Wyoming, and Alaska. By yearend, it expects to have nearly 600 offices running on an integrated loan documentation system from Formation Technologies.

The loan documentation systems employed by KeyCorp and other banking companies consist of two main components.

Principal Components

The first is a kind of compliance checklist that ensures all the supporting information required by regulations has been input before the loan is approved. The services of a law firm are typically included in loan documentation software contracts to ensure that a bank's system is updated with the most current regulatory changes.

The second main component generates the documents needed to process a loan. In software packages being developed by American Management Systems, Formation Technologies, and others, customer information included on the loan documents can be put into the bank's main customer data system.

"The most important feature on a loan documentation system is how it interfaces with the bank's other data bases," said Carolyn Fairbank, originations area manager at American Management Systems.

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