This paper estimates the eects of U.S. nancial markets' deregulations on the
country's distribution of income. We nd that different reforms have moved inequality
in opposite directions. The removal of intra- and inter-state branching restrictions and
the elimination of ceilings on interest rates in the 1970s and 1980s decreased inequality.
These reforms mostly enhanced the incomes of workers in the lower tail of the income
distribution. On the contrary, the 1999 repeal of the Glass-Steagal Act increased
inequality. This reform substantially increased incomes of workers in the upper tail
of the distribution. To explore the underlying mechanisms, we examine the responses
within and across groups of workers, including nance versus non-nance workers. Our
ndings indicate that models based solely on capital skill complementarities (CSC) are
insufficient because they would imply similar responses to all reforms. We construct
a model that endogenously generate household heterogeneity in the and choices of
nancial products and captures the heterogenous income responses to different deregulations.
The model naturally explains how the different deregulations impacted the
opposite tails of the income distribution.