Is there a law, regulation, or practice that prohibits bank employees (or anyone for that matter) from making a xerox copy of paper money or any currency? And attaching to a loan package?

Here is just some of what the Secret Service says about your quest.
I hope this is helpful:




http://www.secretservice.gov/faq.shtml
• What are the rules for the printing, publishing and illustration of U.S. currency?
The Counterfeit Detection Act of 1992, Public Law 102-550, in Section 411 of Title 31 of the Code of Federal Regulations, permits color illustrations of U.S. currency, provided:
• The illustration is of a size less than three-fourths or more than one and one-half, in linear dimension, of each part of the item illustrated
• The illustration is one-sided and
• All negatives, plates, positives, digitized storage medium, graphic files, magnetic medium, optical storage devices, and any other thing used in the making of the illustration that contain an image of the illustration or any part thereof are destroyed and/or deleted or erased after their final use
Title 18, United States Code, Section 504 permits black and white reproductions of currency and other obligations, provided such reproductions meet the size requirement.
Other Obligations and Securities
Photographic or other likenesses of other United States obligations and securities and foreign currencies are permissible for any non-fraudulent purpose, provided the items are reproduced in black and white and are less than three-quarters or greater than one-and-one-half times the size, in linear dimension, of any part of the original item being reproduced. Negatives and plates used in making the likenesses must be destroyed after their use for the purpose for which they were made. This policy permits the use of currency reproductions in commercial advertisements, provided they conform to the size and color restrictions.

Motion picture films, microfilms, videotapes, and slides of paper currency, securities, and other obligations may be made in color or black and white for projection or telecasting. No prints may be made from these unless they conform to the size and color restrictions.

Thanks for your quick response. This is very helpful.