The 29-year-old has re-joined Chesterfield on a free transfer from Barrow, signing a two-year deal.
The central midfielder had his contract cancelled by mutual consent by the League Two club, freeing him up for a return to Town after leaving six years ago.
He scored 12 goals last season and was captain of the Cumbrian side, who finished third bottom, narrowly avoiding relegation.
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“I’ve always said that I would love to return, so it’s nice to get it done and be back,” he said.
“I’m hoping I can bring a bit of experience – I’m getting a little bit older now. We’ve got a really good group of players and we need to get back where we should be.
“Get behind the lads and continue giving the fantastic support. Hopefully, we’ll get where we need to be.”
Banks reunites with manager Paul Cook, who he played for in his previous spell at the Blues, making almost 100 appearances in three years between 2013 and 2016.
He was instrumental in helping Chesterfield win the 2013/14 League Two title, as well as reaching the 2013/14 Johnstone’s Paint Trophy final and the 2014/15 League One play-offs.
Cook's summer recruitment has so far focused on players in their early 20s so Banks will add some much-needed Football League experience.
Banks has also played for Tranmere Rovers, Oldham Athletic and Swindon Town among others. He won promotion with Tranmere from League Two in 2019.
He becomes the Spireites’ eighth summer signing.