Banks continued to reduce their credit exposure from derivatives in the fourth quarter, the Office of the Comptroller of the Currency reported Thursday.

The agency said during the last three months of 1995, the top nine trading banks' credit exposure dropped $12 billion to $228 billion. That put the level of exposure at 250% of risk-based capital, an 8% decline from 273% of risk-based capital at the end of the third quarter.

The OCC attributed much of the decline to the use of netting agreements, which allow banks to use gains on derivatives contracts to offset losses on contracts with the same counterpart.

"We're primarily seeing the continuing benefits of how bilateral netting arrangements reduce credit exposure," said Douglas E. Harris, deputy comptroller for capital markets. A drop in interest rates and market volatility added to the decline in exposure, the agency said.

Mr. Harris downplayed a 20% drop - to $1.6 billion - in overall trading revenues during the fourth quarter, saying it was insignificant compared to banks' overall income. "The decline in revenue is not especially significant because you always expect to see some volatility in these markets," Mr. Harris said.

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