Banks was born in Washington, D.C. and grew up in Chillum Heights, Maryland. He was raised by a single mother, Elena Adams Banks (October 13, 1917 – September 16, 2012), who was a secretary in various federal government offices including the CIA. She was also a private secretary for top Navy officers such as Admiral Nimitz. He graduated from Northwood High School in Silver Spring, MD in 1966, and attended Indiana University Bloomington, where he was a classmate of actor Kevin Kline. During that time, they participated in a production of The Threepenny Opera together. Banks dropped out of the university to join a touring company of Hair as a stage manager. He toured Australia with the Hair company.

Banks married his first wife in 1968. Together, they had one daughter. After his divorce in 1970, Banks married his second wife in 1990. From this marriage, they had fraternal twins. Banks also has a stepdaughter from this marriage.

In 1974, Banks moved to Los Angeles and performed on stage before picking up bit parts on television. He starred in the 1974 sex public service announcement (PSA) Linda’s Film on Menstruation, produced by the Los Angeles Public Library system, which was referenced by John Oliver in a 2015 episode of his show Last Week Tonight with John Oliver focusing on sex education. Banks appeared on the show, ridiculing the content of the PSA. He co-starred in 48 Hrs. and Beverly Hills Cop, and made appearances in Armed and Dangerous, Buckaroo Banzai, Freejack, Flipper, Airplane!, Gremlins, Murder Me, Murder You, Under Siege 2: Dark Territory, and Identity Thief.

Banks’ big break on television came in 1987 with the series Wiseguy, in which he played Frank McPike for four years, a role which led to a Primetime Emmy Award nomination. Although his character was primarily the hero’s mentor, stories occasionally featured McPike as hero. In 1981, he appeared as Dutch Schultz on the NBC series the Gangster Chronicles. He also starred on the short-lived science fiction series Otherworld, as Kommander Nuveen Kroll, and in the sitcom Fired Up.

On May 14 1994, Banks was one of the guests alongside Ben Masters and Stuart Whitman in a two hour long special episode of the television show Walker, Texas Ranger called The Reunion. With Chuck Norris and Clarence Gilyard as a crime fighting duo. In the story, Banks plays the role of a suspicious character who meets the leads (Norris and Gilyard) who are uncovering a plot to assassinate a senator (Masters). On its own the episode was released on Home Media.

In 2014, he had a recurring role as Buzz Hickey in the fifth season of the NBC sitcom Community.

He played the voice of James Gordon in the 2015 video game Batman: Arkham Knight. In 2015, Banks made a special guest appearance on the MythBusters episode “Supernatural Shooters”.

In April 2016, he was awarded an honorary doctoral degree from Indiana University.

Banks played Walt in the 2018 thriller film The Commuter.

In 2019, Nolan North stated that Banks was originally considered to play the role of Zoran Lazaravić in the 2009 video game Uncharted 2: Among Thieves, but the role instead went to Graham McTavish. According to North, the main factors that influenced this decision were Banks’ height and the arrival of actor Steve Valentine as Harry Flynn.