After the global finance crisis short-term policy rates were cut to near-zero levels, yet, bank lending rates did not fall as much as the decline in policy rates would have suggested. If the crisis represents a structural break in the relationship between policy rates and lending rates, how should central banks view the post-crisis transmission of policy to lending rates?  This poses a major puzzle for monetary policymakers. Using a new weighted average cost of liabilities to measure banks’ effective funding costs we show a model of interest rate pass-through with dynamic panel data methods solves this puzzle, and has many other advantages over policy rates. It confirms central banks should focus on the cost and composition of bank liabilities, as many are now doing, to understand the dynamics of lending rates.