OCCASIONALLY in the tangled streets of the City of London, the business people and the tourists are held up by a little procession. The City Marshal, the Swordbearer and the Common Cryer, in full regalia of gold and scarlet, plumes and fur, are making their way to some formal occasion.

Carrying the sword and mace of the Lord Mayor's office, they walk slowly, indifferent to the bustle of commerce around them. Onlookers will not see that in the Swordbearer's hat there is a concealed pocket. This contains the key to the City seal box, and it also used to hold a piece of paper giving instructions as to what should be done if the Lord Mayor drops dead. Nowadays the Swordbearer keeps that in his coat. Even in its pantomime mode, nobody could say that the City of London is unprepared for an emergency.

Last week, it did face an emergency: a huge IRA bomb, one death, several million pounds' worth of damage; on Monday morning, dozens of banks and other firms found their headquarters unusable. It was a very modern emergency and the City's governing institutions are very ancient. Inevitably, people ask if they can cope.

There is nowhere like the City of London, at once an international financial hub and a historical theme park. In the Square Mile (1.06 square miles, to be precise), Japanese banks and American commodities firms jostle with Roman remains and Wren churches. In between are squeezed four main-line railway termini, Smithfield meat market, the Bank of England, Lloyd's, St Paul's Cathedral, Fleet Street and the Barbican - enough fabric to dress a metropolis 20 times its size and 1,000 times its resident population.

Established by the Romans at the lowest point that the Thames could be bridged, it became the market-place of England in the Middle Ages and the bank and warehouse of the Empire in later years. It never did like kings, and as the political capital was established in Westminster, a lively and enduring tension developed. Freedom of worship and the press were tolerated on its fringes when elsewhere they were not, but the City's real interest was always its freedom to make money.

As recently as 1851, 128,000 people lived there; now there are 5,000 residents, swollen to 350,000 in the working day. On three sides, their shining banks and insurance buildings look down upon some of the poorest local authorities in Britain - Tower Hamlets to the east, Hackney to the north, Southwark across the Thames to the south.

A potent symbol of wealth, history and international standing, glazed to the skies, compact and quiet on a Saturday morning: little wonder that the IRA chooses this as its target.

NOW something important is changing there, and the bombs are partly responsible. After the Bishopsgate bomb last week, the Lord Mayor of London, Sir Francis McWilliams, called on the Prime Minister in Downing Street to discuss the worries of the City about its security and its reputation. It was the second time in just over a year that the City had been hit, and a third big bomb had been intercepted, probably on its way there, in November.

As one long-time observer of the City remarked: 'It's the first time I can remember that a Lord Mayor has done anything substantive. Usually these are people who just give banquets and fly the flag abroad, where other people make the mistake of thinking they're important.'

Lord Mayors of London, long regarded as gold-decked bit-players in the pageant of Olde England, have in the past couple of years been trying to exercise some political muscle. Sir Francis and his predecessor, Sir Brian Jenkins, have led campaigns to bring the European central bank to London, to improve public transport and, after the St Mary Axe bomb a year ago, to persuade the Government to prevent City property becoming uninsurable because of the security threat.

'There is a much higher degree of activity, and it's not just this week,' says Michael Cassidy, chairman of the policy committee of the Corporation of London. 'People who hardly knew we existed are starting to realise we are here.' He points to opinion surveys in the City, showing it is becoming better known and more favourably regarded. A poll last week showed that 74 per cent of City organisations thought the Corporation had reacted well to the latest bombing; 1 per cent thought it had done badly.

The City is a place of separate and introverted communities rather than a single community. As Sir Patrick Sergeant, doyen of City journalists, puts it: 'Most of the people in the metal market don't talk to people outside, unless it's to their banker, and he will probably be a metals specialist as well. It's a collection of markets, and it would be wrong to lump them together.'

Most people in these markets never spare a thought for the Corporation. When something has been said or done on behalf of the City, it has very often been done by the Bank of England, or the Government, or even, in the past, by the Greater London Council. Now, in a modest way, and propelled by the two bombs, the Lord Mayors have been pushing the Corporation into the foreground. They have begun to act as the City's spokesmen.

This seems odd only when you consider how the Lord Mayor of London is chosen. Two candidates, from a possible field of 12, are nominated in a show of hands by an assembly of people, many of whom have only the most tenuous connection with the City and most of whom are passing themselves off as cordwainers, mercers, fletchers, skinners and the like.

The annual Common Hall of City liverymen, where this election takes place, may be colourful (a sword is solemnly laid upon a bed of roses), it may be noisy (the Common Cryer has a lot to do), it may be ancient (Dick Whittington was probably chosen this way), but it is hardly democratic. Can someone elected in this fashion claim to represent the fund managers, currency dealers, stockbrokers, merchant bankers and sandwich vendors, let alone the residents, of the Square Mile?

Mr Cassidy and others at Guildhall, the City's town hall, say the Lord Mayor is only the icing on the cake; it is the Corporation that matters. This comprises the Lord Mayor, the 24 aldermen and the Court of Common Council. The 130 common councilmen conduct the real business of City administration, and they represent a quite different electorate.

Again, however, it is an unusual electorate. Fewer than 20,000 people are eligible to vote, and of these about 5,000 live in the City. The rest are business voters: any trader or partner in a firm liable for rates may register to vote, and may do so in any and all wards where he pays rates.

The justification for this is that the City is primarily a place for working in rather than living in and it would be absurd if the denizens of the Barbican, the City's up-market housing development, could push around the Stock Exchange or the clearing banks.

The system none the less can seem unfair. Most elections are uncontested, but in 1991 there was a notorious by-election in which a solicitor defeated a resident by 40 votes to 12. It then emerged that no fewer than 44 partners in the legal firm where the solicitor worked were entitled to vote, and of those, 19 did not even work in the City. Little wonder that the Corporation has been described as a rotten borough.

The Labour MP Tony Banks says: 'This is a nonsense and it must be dealt with. It is wholly anachronistic in democratic terms.' A Labour government, he says, would review the electoral basis of the Corporation as part of wider changes to the way London as a whole is run.

The Corporation has several defences: the elections take place every year and plenty of them are contested; councilmen are exceptionally available and responsive to their electorate; other local elections around the country are hardly models of participatory democracy. But the most powerful defence is a simple one: success.

THE CITY of London is almost unimaginably successful at what it does, and has been so for a very long time. We notice the failures and scandals, such as Lloyd's or BCCI, but the true picture is one of vast and sustained profit-making across a bewildering range of markets, from shares to shipping, metals to bonds, financial futures to foreign exchange.

London is one of the world's three biggest market-places, beside New York and Tokyo, and of those three it is the most international. The modern Corporation can hardly take credit for this. In many ways London's world financial role is a relic of empire that has survived largely by accident and the ingenuity of immigrants. But the Corporation has not fumbled it, and its supporters argue that its non-political nature - there have never been political parties in the Common Council - has helped provide the stability and continuity that the traders demand. In important ways, too, the Corporation has acted to safeguard the City's position.

One of its principal powers is the control of building in the Square Mile. In the mid-1980s, after a long period of restriction on new development, the Corporation saw that the electronic markets that followed Big Bang would require new trading floors and new kinds of building. It looked east and saw just such buildings being planned in Docklands and in other European financial centres. If the City did not open the way to change, it concluded, it would be abandoned.

The result was spectacular: in eight years, one-third of all the buildings in the City were replaced. Tall blocks sprang up everywhere. Property prices in London collapsed, but the threat from Docklands and abroad was seen off. Some of the old markets, such as the Stock Exchange, have dissolved into the electronic ether, with dealing screen-to-screen rather than face-to-face. But the screens and the traders who use them are still in the City, not in Canary Wharf or Frankfurt.

There is another, much narrower way of measuring the Corporation's success. As anyone will attest who walks the City streets, or visits the Barbican Centre or the Museum of London, or who saw the clear-up in Bishopsgate last week, it is a good manager.

To this there are some striking testimonials. When the GLC was abolished in 1986, Hampstead Heath, London's biggest open space, was left without a natural home. Suggestions that the Corporation take it over were greeted with horror by the local paper, the Hampstead and Highgate Express. Now its editor, Gerald Isaaman, takes a different view. 'Without doubt it has been a success,' he says. 'The City has done an excellent job. It has been sensitive and responded to local feelings.'

Another vote of confidence comes from just beyond the edge of the City, where the residents of an estate called Golden Lane have just persuaded the Boundary Commission to redraw the frontier and place them inside the City.

Similarly, it was the efficiency and stability of the City organisation that led the Government, at the time of the break-up of the GLC, to assign to the Corporation responsibility for all of Greater London's traffic lights.

Money helps. The City pays pounds 700m a year in business rates, of which all but pounds 72m is passed on to the local government pool. The pounds 72m pays for libraries, police, social services, roads and so on, as well as the Barbican. Then on top of this the Corporation has private trust funds which generate another pounds 70m a year.

Many of these funds are ancient. There is one established in 1423 on the death of Dick Whittington. Another pays to maintain the four Thames bridges that the Corporation owns. This has been accumulating so long that it is today worth pounds 500m.

The private funds are used to pay for many of the extra and unusual responsibilities that the City has acquired, such as Smithfield and Billingsgate markets, three schools, the Guildhall school of music, formal banquets for visiting heads of state and regular foreign visits by the Lord Mayor.

The picture then is of a kind of domestic Hong Kong, undemocratic at the base but efficient, well run and beloved of the wealth creators. But Tony Banks argues: 'The mere fact of being efficient in the aftermath of a bomb doesn't justify flouting democratic rules which apply to everyone else.'

However, the Corporation is an ancient institution, and that is where it finds its legitimacy.

Even when a third of its buildings are less than 10 years old, the City of London is a place of history. Every street name, every church and every institution has a past that may stretch back to the Dark Ages, or the Great Fire, or Dickens. There can be few places with as much recorded history per square yard as the City of London, and besides spending their pounds 142m a year, the Lord Mayor, the aldermen and all the other preposterous trappings of the Corporation are undoubtedly living links with that past.

There may be no more Fletchers or Horners or Loriners or Broderers in the City, but the livery companies survive. The Hat Band Makers and Long Bow String Makers have gone out of business, but others have replaced them. Newest is the Worshipful Company of Information Technologists, complete with Clerk, Beadle, Master (a woman) and coat of arms.

Once, people joined the companies because they were closed shop trade unions; today they join mainly because they are clubable types, because their fathers were members, or to make business contacts. 'I was once invited to a dinner of the Solicitors' company,' says a banker who is not a liveryman. 'There were a couple of members who wanted me to give them some business.'

Charles Shears, Clerk of the Worshipful Company of Cordwainers - shoe-makers - insists that there is something else as well. 'You've got to have a sense of history; otherwise you wouldn't join. You are trying to support the City and its traditions.'

(Photograph omitted)