A filter bank divides the audio spectrum into adjacent bands, each processed independently. In a graphic EQ, each band has a fixed frequency and adjustable gain. In a crossover, the filter bank separates lows/mids/highs for different drivers. In multiband compression, each band has its own compressor settings.
Filter bank design affects crossover distortion: the filters must sum back to flat when all bands are at unity gain. Poorly designed filter banks create peaks or dips at the crossover points between bands — most noticeable in graphic EQs and crossovers.