U.S. commercial banks reported that trading revenue dropped dramatically during the second quarter to $5.2 billion, compared with record revenue of $9.8 billion in the prior quarter.

The Office of the Comptroller of the Currency said on Friday that the banks' revenue from trading foreign exchange, interest-rate and other derivative instruments was still strong.

After such a strong first quarter, we expected to see a seasonal decline in trading revenues, and indeed that occurred, Deputy Comptroller for Credit and Market Risk Kathryn Dick said in a statement.

The OCC also reported that net current credit exposure -- which the agency uses to measure credit risk in derivatives activities -- decreased 20 percent during the quarter to $555 billion.

Dick said the exposures remain very high, and that bank supervisors continue to encourage banks to increase the volume of derivative contracts cleared by central counterparties.

Lawmakers are currently examining how they can overhaul the regulation of derivatives, and encourage more contracts to go through central clearing, which would add transparency to the $450 trillion private swaps market.

Global policymakers agree that the over-the-counter derivatives market should be regulated after a type of derivatives, credit default swaps, led to insurer American International Group's near collapse and $180 billion government bailout.

(Reporting by Karey Wutkowski, editing by Matthew Lewis)

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