The 21-year-old spent last season on loan at Bradford City, scoring six goals as the Bantams triumphed in the Ligue 2 play-offs and winning the club’s Young Player of the Year award.
Banks, a Scotland Under-21 international, played in first-team pre-season and, having committed his long career to the club, will now continue his progression in Germany.
St Pauli will return for promotion to the Bundesliga in 2023/24, having finished fifth last season in the 2. Bundesliga.
Everyone at Crystal Palace wishes Scott all the best for his stay in Germany.