What UBS-Credit Suisse Deal Means for Your Finances

What happened

International investment banking giant UBS agreed on Sunday to buy Credit Suisse for 3 billion Swiss francs (around $3.2 billion). The Swiss government and central bank pushed for the deal in order to restore confidence in the national economy and the wider banking system. The merger, which does not need shareholder approval, is expected to be finalized by the end of the year, if not before, per a Credit Suisse press release.

So what

The Swiss government sweetened the deal by committing billions of dollars in guarantees, in addition to extensive liquidity backstops from the central bank, according to Bloomberg. Nonetheless, Swiss Finance Minister Karin Keller-Sutter insisted it is, "A commercial solution and not a bailout."

For American consumers, the big question is whether the deal will be enough to restore confidence. Authorities worldwide want to prevent further banking contagion following the collapse of Silicon Valley Bank. Recent moves include:

• A Federal Reserve promise to make extra emergency money available to other struggling banks.
• A joint deposit from 11 top banks of $30 billion with First Republic in an effort to shore up the ailing bank's reserves.

Now what

The issues in the banking industry have spooked both consumers and investors. If you're worried about the safety of money, know that FDIC insurance will protect you for up to $250,000 per person, per account. If you have more deposited in a single bank account, take steps to protect any cash that's not covered. The government guaranteed uninsured deposits with SVB, but there's no guarantee it will do so again.

Confidence is crucial for the banking industry. If people don't believe their money is safe, they start to pull their deposits. Even in a healthy bank, this can cause problems as it means it would have less money available to underpin its lending. In a worst case scenario, widespread withdrawals can cause a credit crunch -- which is what authorities and banking leaders want to avoid.

Here are three ways you can prepare your finances for a credit crunch:

• Beef up your emergency savings: If you don't have cash stashed away in a savings account to see you through a financial emergency, prioritize this above other financial goals.
• Take steps to improve your credit rating: In a credit crunch, banks may be less able to make loans, so you may need a higher credit score to qualify. Make sure you pay bills on time and see if you can reduce your credit utilization ratio. Both factors are key to calculating your score.
• Pay down debt: A credit crunch could make borrowing more expensive. The more debt you can pay down now, particularly of the credit card variety, the less you'll pay in interest and the more disposable income you'll have to handle any economic difficulties.