He has previously played in Europe, during a spell in Russia in 2011, and will arrive in Treviso in October.
Kiwi head coach Kieran Crowley knows Banks well according to sporting director Antonio Pavanello and his signing was the club's first priority as they looked to lock up the fly-half position for the upcoming campaign.
Pavanello said: "The three-quarters, and particularly the fly-half position, were an area where we need to make important changes.
"With Banks, a player who Crowley knows well, we have officially got one of the options for the No.10 jersey. We were convinced by his all-round game which will allow him to manage crucial moments of the game, especially in circumstances when kicking is vital."
Banks will try to help the Highlanders retain their Super Rugby crown this season but admits he cannot wait to kick off his next chapter in Italy.
"When I heard that Treviso was interested in me, it was really exciting. They immediately made me feel part of the club project," Banks said.
"I can't wait to get started in this new adventure. I'm preparing as well as I can so that I can make a positive impact and help the team to achieve their objectives."
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