We have an interesting building from the 1920s that is brick construction, built as a two-storey bank building. All good-looking brick on the outside, well tuck pointed. Inside, the applied stucco?/mortar?/plaster? is chipping off in some places (about 10% surface area) and the rest of the 90% is just roughly done in the first place. I'm wondering if the best thing to do is knock off the loose stuff, and repair and restore 100% of the walls using drywall mud. I've done this before on brown coated plaster in good shape with minimal problems. Is mortar or stucco actually used to skim and finish brick walls in the first place?

Also, it may be best to furr out the walls with 2" wood strips, insulate with 2" rigid foam, and apply drywall. Using a vapor barrier before installing drywall is my choice. Will this cause any moisture issues to use rigid insulation? I've heard the mortar used on older buildings (certainly from the 1920s) may not be moisture hardy like Portland cement is these days, and using a vapor barrier could cause moisture to "backflow" to the exterior, passing through the old mortar joints twice instead of evaporating to the inside, and causing accelerated mortar joint failure. Is this a concern?

Thanks much for any help with this subject.