The Federal Reserve Board yesterday removed another small chink in the rapidly crumbling wall that separates the commercial banking industry from the securities business.

The central bank approved the application of BankAmerica Corp., to buy the Charles Schwab Corp., which owns the nation's largest discount brokerage firm.

A spokesman for BankAmerica, parent company of the Bank of America, said the acquisition could be completed within a week. BankAmerica, with about $120 billion in assets, alternates between being the first and second largest bank company in the United States.

The erosion of the barriers between the banking and securities businesses--barriers which date back to the Great Depression--are symptomatic of a melding of the entire financial services industry. Both the banking and securities businesses continue to resist incursions on their traditional turf while pushing hard into new territory.

The Securities Industry Association, a trade group that represents most brokerage firms, said that it probably will go to court to try to overturn the Federal Reserve Board's decision.

Edward I. O'Brien, president of the securities trade group, said the decision "reflects the Federal Reserve's bias in favor of the banking industry--a bias found among most bank regulators." He said Congress, not regulatory bodies, should decide whether to change "the ground rules" in the financial industry, where for the last 50 years banking functions have been separated by law from securities activities.

But the Federal Reserve said the acquisition of Schwab by BankAmerica is "consistent with the Glass-Steagall Act," the 1933 law that insulates "commercial banking from certain aspects of the securities business."

The Federal Reserve Board, in a 6 to 0 vote, said Schwab--a so-called discount broker with 51 offices across the country and about 350,000 accounts--does not engage in securities activities that are prohibited by law.

Schwab executes trades for customers but does not engage in underwriting securities (buying newly issued stocks or bonds from a company and reselling them to investors) or dealer activities, in which a dealer buys securities for its own accounts with the intention of selling them to investors later.

The discount brokers offer fewer services than full-line brokerage firms but generally charge lower fees.

The banking industry and the securities industry have battled each other for the last several years as each try to get into each other's business.

Banks in recent years have been offering stock and bond brokerage services to their customers, usually through a tie-in with a discount securities firm.

In August, however, the comptroller of the currency approved Pacific National Bank's application to establish its own discount brokerage subsidiary, a move that the securities trade association is fighting in court.