Republican and Democratic leaders of the Senate Banking Committee met last night to begin working out a compromise bill that would tear down 54-year-old legal barriers separating commercial banking from securities underwriting.

Committee Chairman William Proxmire (D-Wisc.) and Sen. Jake Garn (R-Utah), who is the committee's ranking minority member, met for two hours to discuss how to change a draft banking bill Proxmire unveiled last week.

"It was a very positive meeting. We're moving in the right direction," said a Senate aide who spoke on condition that he not be identified.

If Garn and Proxmire reach agreement, they will cosponsor the bill, making its passage by the full Senate much more likely, congressional banking aides said.

The aides said the senators were expecting to work through the weekend to reach a compromise and that a bill might be presented to the Senate Banking Committee as early as next week.

A key area of disagreement between Garn and Proxmire is how much the Federal Reserve Board should be involved in regulating securities activities associated with banks. They also disagree on how far proposed changes in the banking law should apply to the savings and loan industry.

Proxmire's draft would have given the Fed, which now regulates companies that own banks -- so-called bank holding companies -- far greater authority to regulate financial institutions.

The other top federal banking regulators -- The Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Home Loan Bank Board -- have said in recent weeks that they object to extending the Fed's regulatory oversight to the financial institutions they supervise.

Garn, other lawmakers and many financial industry groups also have objected.

A related debate between Garn and Proxmire centers on how banks and securities firms can be associated without breeding conflicts of interest and jeopardizing the safety and soundness of the nation's financial institutions.

Some banking experts argue that banks and securities firms should be able to buy and own each other directly.

But others say that only a holding company should be permitted to own a bank and securities firm, a structure that would make the bank and securities firm affiliated only through a parent company and thus much less involved in each other's activities.

Proxmire and others believe the holding company structure is better able to prevent conflicts of interest between banks -- which lend money to investors and companies -- and securities firm -- which invest in companies and help them raise money in the stock and bond markets.

As the senators work to draft their bill, House Banking Chairman Fernand J. St Germain (D-R.I.) is busy crafting his own legislation to address the issue of allowing the banking and securities industries to mix.

Congressional aides said that no one knows how the Senate and House bills ultimately will differ, but they said that the Senate's effort to pass a bank deregulation bill has spurred the House. "The House is very sensitive that the Senate has taken the lead on banking bills," said a Senate aide.

Despite the flurry of attempts to draft a banking bill, many lobbyists say the 1988 elections make it doubtful that Congress will pass major bank deregulation bill before 1989. Banking issues are just too sensitive, they said.

Not everyone agrees. "Banking legislation often passes in election years," said Karen Shaw of the Institute for Strategy Development, a Washington-based consulting company to the banking industry. "The question is whether Congress wants to do anything."

Congress' attempt to pass a bank deregulation bill is a reaction to the deregulation that already has taken place in the market because of electronic innovations and increased competition. The changes have made many banking laws out of date and have given control over what banks can and cannot do to the courts and federal regulators.