The dynamic relationship between a money market (interbank) rate and different short-term lending rates is analysed by measuring the pass-through process between these rates in the Argentinean banking system. Neither linear single-equation modelling nor linear multi-equation systems capture efficiently this relationship. The presence of several episodes of financial crises alters the speed and degree of response to shocks in the interbank rate. Thus, a Markov switching VAR model shows that under normal financial conditions short-run stickiness is higher for those rates on loans with higher credit risk. But it also shows that when there is a high-volatility scenario, the pass-through increases considerably for all interest rates. The MSIAH(2)-VAR(1) identifies correctly periods of financial distress (in which regime switch occurs). © 2005 Taylor & Francis Group Ltd.