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Purpose: The purpose of this paper is to analyze the financial friction effect of non-performing loans (NPLs) on financial intermediation (FI) through empirical evidence from the Brazilian experience. Design/methodology/approach: The authors develop a new variable, financial intermediation flow and a new indicator, FI, both measures of FI. To empirically test FI, the authors use a dynamic panel data framework that draws on 101 banks (December 2000 to December 2015). Findings: An increase in NPL reduces FI. Thus, NPL amplifies financial friction in FI. This result holds in different time frames, such as the pre-crisis period, the crisis period and the post-crisis period. Practical implications: The FI measure developed in this study offers the policymakers a possibility to monitor financial stability. Originality/value: This study adds to this debate by proposing a measure of FI derived from financial flows. This measure allows one to estimate the role of NPL as a financial friction that can pose a threat to financial stability. [ABSTRACT FROM AUTHOR]