Most of the banks that moved east to Canary Wharf, such as Morgan Stanley and Credit Suisse First Boston, did so in search of a specific commodity that the City of London could not provide enough of: space to accommodate large trading floors.

But Lazard, with its emphasis on providing corporate advice instead of trading, has no such need. With only 500 employees in London, there is no apparent reason why it could not have stayed within the more confined spaces of the City. Furthermore, Marcus Agius, Lazard's chairman in London, readily admits that the rent would have been cheaper had the firm stayed within the area commonly known as the Square Mile.

The reality behind Lazard's move reflects two main trends: the shift in the balance of power between clients and their advisers; and the weakening of those institutions - particularly the Bank of England and the Stock Exchange - that for centuries were the mortar between the City's competing firms.

Clients have gained a stronger hand in their dealings with bankers as the sources of advice and capital have proliferated. Whereas clients used to call on their bankers cap in hand, bankers now find themselves in a buyer's market, forced to call on their clients. And most of them are outside the City.

'We should have done it years ago,' says Mr Agius. 'It'll be more expensive but I would be very surprised, if not astonished, if we don't make it up in efficiency. It will transform our productivity. We will see a lot more of our clients and they will see a lot more of us.'

Several of the larger investment banks that were forced to move to Canary Wharf have also recognised the need to maintain a base within strolling distance of their corporate clients. Their answer is to keep a pied-a`-terre in the West End. Morgan Stanley, for example, has an elegant town house just off Grosvenor Square, equipped with butlers for entertaining and computers wired up to the bank's systems. Schroder Salomon Smith Barney has its own place for dining and dealing, in Carlton Gardens in St James's.

However, the fact that a bank of Lazard's heritage feels able to decamp out of the City speaks volumes about the diminished importance of the Square Mile.

Mr Agius says: 'All the reasons why we were in the City no longer exist. The Stock Exchange is completely irrelevant because it's all done electronically. Our regulator [the Financial Services Authority] isn't in the City but in Canary Wharf. And we are no longer a bank - when we closed our money-markets operation the banking licence went with it - so we don't need to be near the Bank of England.'

It was not always that easy to tear oneself away. Vickers da Costa, the stockbrokers, had to seek the permission of the Stock Exchange Council in 1955 to move all of 300 yards away from the market in King William Street. Six years later the upstart SG Warburg caused a huge fuss when it moved less than half a mile from its offices in King William Street to Gresham Street, even though it was still firmly in the Square Mile.

But the City then was a village in which Kim Cobbold, governor of the Bank of England, could boast: 'If I want to talk to the representatives of the British banks or indeed the whole financial community, we can usually get together in one room in about half an hour.'

David Kynaston, historian of the City, says the parochial atmosphere mattered in a world of face-to-face financial markets and small, privately owned firms. 'There was a lot of co-operation - and there were not firms with a lot of capital so they had to be seeing each other: they couldn't afford to take the whole hit.'

Electronic trading and the takeover of most British firms by large US or continental European banks changed everything.

It is not all bad news for the City. Although financial services employment has grown much faster outside the City over the past 15 years, there are still about 230,000 people working in financial services in the City. That is more than the almost 40,000 who work in Canary Wharf and the 66,000 in the rest of London.

Merrill Lynch remains so committed to the City that it has just spent an estimated £350m developing a European headquarters next to St Paul's Cathedral. It looked at more than 30 sites but decided that its staff and clients liked its being in the City. The fact it is one of the largest institutional equity trading houses and many institutional investors remain in the City may have influenced the decision.

An important part of the insurance industry has also decided to stay. It remains clustered around Leadenhall Street, to be close to the Lloyd's market where risk is underwritten by hand.

Nevertheless, the teeth and claws of the financial services industry are moving to other parts of London that allow them to escape the confines of the City without having to move to Frankfurt. Barclays and HSBC are planning to move their headquarters to Canary Wharf, as are Clifford Chance, the lawyers.

Judith Mayhew, chairman of the policy and resources committee at the Corporation of London, says: 'It is not the end of the City but we have to look out and respond.' One way it is fighting back is by promoting the construction of new buildings.

Another is to redraw the map. 'The City is the middle of the financial services district, which stretches from Victoria to Canary Wharf,' she says.

Financial Times