Banks was born in Washington, D.C. His mother, Elena (Adams) Banks (b. October 13, 1917 - d. September 16, 2012), worked for the CIA and later served as a professor at Indiana State University. He 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 remarried to his second wife in 1990. From this marriage, they had fraternal twins. He also has a step daughter from this marriage.
In the second season of Breaking Bad, Banks appeared as Mike Ehrmantraut. He became a series regular for the third, fourth, and fifth seasons. For the fifth season, he received a Primetime Emmy Award nomination for Outstanding Supporting Actor in a Drama Series. He also made guest appearances on several TV shows. In 2014, he had a recurring role as Buzz Hickey in the fifth season of the NBC sitcom Community. Banks reprised his role as Mike Ehrmantraut as a regular in the Breaking Bad spinoff series Better Call Saul, for which he earned his third Emmy nomination in season 1. In April 2016, he was awarded an honorary doctoral degree from Indiana University.
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".
He also plays Walt in the 2018 thriller film The Commuter.