Like almost every other business, banks see the tons of paper they sort and file as something they'd love to eliminate. But it appears technology is only making a small dent in the document deluge.

However, banks continue to invest heavily in new systems because one of the few remaining ways they can contribute to the bottom line by cutting costs is through the operational savings associated with reducing paper flows.

Toward that end, banks have become fairly efficient in the handling of payments, thanks to tenacious investments in such technologies as document imaging, electronic data interchange, groupware, and electronic mail.

Banks have invested billions in these systems over the years to ease the flow of paper - checks, lending documents, customer correspondence, and the like.

There's no end in sight to this spending spree either, according to the 1995 American Banker/ Tower Group survey of bank technology.

The Tower Group estimates that banks will spend around $840 million this year on new and existing imaging systems alone.

However, despite this and other technologies in place to eliminate paper and associated processing, there still are 16 billion checks and other documents floating around the nation's bank offices, the survey estimates.

And furthermore, despite banks' aggressive use of document imaging and other technologies, the survey estimated that the use of paper, in all its forms, will continue to grow at a 4% annual clip.

David Medeiros, a technology analyst with the Wellesley, Mass.- based Tower Group, said that although banks continue to spend big on imaging and other technologies, they are barely keeping up with the demands for documentation they need to run their businesses.

The vision of the paperless office is not yet a reality, Mr. Medeiros said. Banks are putting lots of money into image technology not to get rid of paper (items) altogether, but to electronically route them, access them, index them, and distribute them much more efficiently.

One reason that Mr. Medeiros cited for the growth in paper was the convenience of paper checks, the use of which has been growing steadily for years, despite years of predictions that electronic payment systems like the automated clearing house network will curb it.

The automated clearing house network was created by the federal government in the early 1970s to deal with exploding check volumes, which at the time were putting major strains on the U.S. payment system.

But while the clearing house network handled 2.5 billion transactions in 1994, more than 60 billion checks were written - and the volume continues to grow.

The banking industry has just made it too easy for consumers to pay by check, Mr. Medeiros said. Banks provide checks at nowhere near what it actually costs to process them.

Tower estimated it costs the U.S. commercial banking industry around $4 billion a year to process checks.

Paul Connolly, first vice president with the Federal Reserve Bank of Boston, said an investigation in the late 1980s looked into the total economic cost of check usage, including the costs of printing blank checks, use in the economy by businesses and consumers, the banks' collection and deposit systems, and use of the postal system to mail checks back and forth.

The Fed estimated it cost between 0.5% and 1% of the U.S. gross domestic product, or somewhere between $35 billion and $70 billion a year. Mr. Connolly said, It's a reasonable estimate.

But checks and related payment documents, such as remittance stubs, deposit tickets, and invoices, are not the only form of paper that's expanding - the use of various lending documents is growing as well.

Mr. Medeiros said another primary driver behind the burgeoning paper use is a library full of regulations from regulators such as the Comptroller of the Currency, the Federal Deposit Insurance Corp., Congress, and the Federal Reserve.

As a result, banks must keep scores of documents for many of their activities, Mr. Medeiros said.

There may soon be regulatory relief, though.

A bill co-sponsored by Sens. Richard Shelby, R-Ala., and Connie Mack, R-Fla., attempts to reduce the amount of record keeping required by the Community Reinvestment Act, along with several other disclosure requirements.

A similar bill, introduced by Rep. Doug Bereuter, R-Neb., is stalled in the House.

Rick Sellers, president of Huntington Services Co., a unit of Huntington Bancshares, cited another reason paperwork volumes are increasing rather than decreasing: the high costs of the technology in general, and imaging systems in particular.

Although some have made the commitment to imaging, Mr. Sellers said, many more - including most of the top 100 banks - have not .

Banks have become more selective in the use of capital, Mr. Sellers said. There's a lot of potential use for that capital; they pick the ones with the fastest and highest returns.

Institutions will spend around $260 million this year on new imaging systems alone, according to the best estimates of the Tower Group.

Tower projects that new image systems spending will increase to $425 million by 1998.

Also, Mr. Sellers noted, many imaging systems are based not on mainframes, but on client/server platforms - which are proving to be more difficult to implement than expected.

Mark J. Havlik, a vice president with Shawmut National Corp., agreed with Mr. Sellers that banks are becoming more selective about how they invest.

Shawmut has made a major investment in electronic data interchange - another technology with a high price tag.

Used to exchange payments and related information in standard computer formats, it automates the accounts payables and receivables stream for corporate customers.

It has the potential to become a lucrative fee-based service someday.

Like Mr. Sellers though, Mr. Havlik said banks continuously face pressures on their earnings and must think twice before gambling real dollars for speculative savings.

It's not like I get rid of this system and can immediately take down 500 people and save millions in cost, Mr. Havlik said. It's very difficult to get approval for that kind of a development.

He noted that Chemical Banking Corp's recently announced check imaging project, at $50 million, was a huge amount of money, to justify, especially if the expenditures do not produce the desired results.

Chemical's planned merger with Chase Manhattan Corp., announced last month, does open the possibility that the project may not proceed.

But in an interview before the announced deal, Denis O'Leary, Chemical's executive vice president and chief information officer, noted that the bank's large size allows it to commit vast investment dollars to new systems.

There are a lot of things that we are doing today with image that we couldn't do if we were a smaller institution, he said.

Chemical officials detailed several paper-based technology projects - such as the consumer loan operation in its Texas subsidiary - in which the volumes of paper have been drastically reduced. The subsidiary, Texas Commerce Bank, prints out data when customers are ready to sign for loan, then scans the information back into its electronic file folders.

Chemical also employs a hypertext system, which delivers bank officers a host of information through a series of connected pathways.

Through Chemical's worldwide E-mail system, expense reports, research and adjustments, and annual reviews are all performed on-line.

Meanwhile, Tower Group's Mr. Medeiros said that as the price of technology decreases, more banks will come around, particularly to image technology.

The survey estimated there were 220 million lending documents and an additional 80 million banking documents currently adapted to full-page file folder imaging. Those figures are expected to increase at an annual growth rate of around 10% over the next three years.

The bottom line is, Mr. Medeiros said, if we didn't have all these technologies designed to initiate electronic payments, convert paper, and create communications in electronic form, the industry would be drowning.

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