The sun sets on the City of London

As another bank threatens to leave, the Square Mile is struggling to retain its status as London's financial centre

Is the dominance of the City of London coming to an end? The historic centre of London has long been the headquarters of British finance, the home of classical buildings that accommodate the bankers, traders, accountants, lawyers and regulators who direct money around the arteries of global capitalism.

The grand institutions of the money markets – the London Stock Exchange, the Bank of England and Lloyds of London – are still located in the Square Mile, within the medieval limits of the capital, the long-disappeared London Wall.

But as time goes by, more financial institutions are moving out of the City; westwards to Mayfair and St James's for the hedge funds, the investment boutiques and the powerful private equity funds; and eastwards for the gigantic US investment banks which have colonised the skyscrapers of Canary Wharf in the once decaying Docklands.

A small but telling sign of this shift has emerged this week in the decision of Credit Suisse, Switzerland's second largest bank, which is based in Canary Wharf, to consider closing its remaining office in the City, in Tower 42 (the old NatWest Tower), and open a new one in the West End, closer to its "client base" – the hedge funds that control billions of pounds of funds from Georgian houses north of Oxford Street, and the private equity brigade massing in Berkeley Square.

Some senior bankers are now muttering that the City is no longer the place that it once was, that the "buzz" which surrounded it is reverberating less each year.

Finance has "burst its banks" in the City, according to one experienced commentator. The money men are fanning out across London, taking their extravagant salaries into new areas and encouraging a secondary trade in expensive watches, jewellery, bespoke tailoring and fine dining.

The authors of the Michelin Guide, for instance, say Mayfair enjoys the finest restaurants in the country because they enjoy close proximity to the expense accounts of the "hedgies", the professorial elite whose complex financial instruments (or "bets") make money in rising and falling markets.

The City, it seems, has become a victim of its own success. When Margaret Thatcher unleashed the Big Bang – introducing automated dealing and sounding the death knell for the "buy, buy" trading floors – in 1986, the Square Mile was home to hundreds of small, historic banks and stockbrokers with names such as Barings and Cazenove.

Emboldened by the break-up of the old gentlemen's club, foreign banking giants swallowed up their small British counterparts and turned the City into a high finance variant of Wimbledon, a lucrative world-class arena with few British players.

As a result of light-touch regulation, tax breaks and its fortunate position as a geographical and chronological bridge between Asia and the US, London has become the richest city in Europe, and vies with New York for the title of the world's financial hub.

With its administrative function and remaining firms, the City still employs 350,000 people. But Canary Wharf has experienced explosive growth to hit 80,000 employees and the West End now has more than 10,000 – including some very high earners.

David Charters, who worked at Warburgs and Deutsche Bank from 1988 to 2000 and who is now a partner at the boutique finance house Partner Capital in Berkeley Square, says that moving out of the City, not into it, is now a sign that you have arrived.

One of the reasons finance professionals prefer to make the West End their home is that the City has become too congested, making commuting unattractive, says Mr Charters, the author of City novels such as At Bonus Time: No One Can Hear You Scream.

"Jumping into a cab to the West End is so much more agreeable. When you get out at lunchtime for a sandwich you can look around an art gallery or an antique shop." Thanks to the new technology, the "talent is mobile," he says.