During the last decades the use of economic instruments to improve the water demand management has been suggested due to the difficulty of further increase in the supply. in this sense, this paper analyses the potential of water banks as a type of water markets that can provide institutional flexibility in the allocation of water resources among different users. Research has involved an extensive review of the literature, which has allowed the development of a typology of water banks operating worldwide, as well as a critic analysis of the experiences implemented to date, in order to assess the performance of this economic instrument in order to improve water management. this has allowed to evidence that water banks are a useful instrument to minimize the socioeconomic and environmental effects of droughts. However, the Spanish experience regarding water banks has been limited to date, being devoted almost exclusively to improve the environmental status of water bodies. Finally, the analysis performed has allowed to provide suggestions about how to improve the implementation of this instrument in Spain, providing guidelines for the legal reforms required in this sense.