Water scarcity poses significant challenges for the American West. Rising demand from agriculture, industry, and urban populations coupled with diminishing and variable supplies resulting from overconsumption and climate change has placed great strain on traditional institutions that govern water. Water banking is approach that has been used to address these challenges and augment water supplies by incentivizing conservation. This essay examines how water banking has been used in Colorado with particular focus on the Arkansas River Basin. It analyzes the political and institutional factors that have impeded the adoption of water banking in the state. The broad goal is to identify the factors that might allow for an institutional “update” of Colorado’s water governance framework that would allow it to respond to 21th century needs.