Political gridlock on Capitol Hill is keeping Congress from passing laws needed to govern financial institutions, renew the estate tax and shore up the Social Security trust fund, according to a former Federal Reserve chairman.

Paul Volcker, the Fed chief from 1979 to 1987 and the current head of President Obama’s Economic Recovery and Advisory Board, voiced this concern during a recent question-and-answer session with financial reporters at a retirement savings event hosted by AXA Equitable Life Insurance Company, New York.

“We have an abnormal legislative situation because of the level of partisanship,” Volcker said. “I hope that financial regulation doesn’t get bogged down in this very contentious political environment. As a practical matter, I think we need a strong legislative directive.”

The country needs regulations that would prohibit deposit-taking institutions from engaging in activities such as proprietary trading and investing in private equity funds and hedge funds, Volcker said. He is backing a proposal, introduced by President Obama in January and known as “the Volcker rule,” that would prevent commercial banks from owning and investing in hedge funds and private equity funds. The proposal also would limit the trading that commercial banks do for their own accounts.

“These proprietary activities–the great triad of hedge funds, equity funds and proprietary trading–are not customer-related activities,” Volcker said. “To the extent they are customer-related, they create conflicts of interest. There is already plenty of risk in commercial banking. Do we really want to add more risk that is not central to the functions of the banks?”

Echoing previous public comments, Volcker also called on Congress to grant the federal government “resolution authority”: the power to take control of, merge or liquidate financial institutions that pose a “systemic risk” to the economy because their failure would threaten the financial system. He noted, however, that few “systemically important institutions” exist outside of the commercial banking and life insurance sectors.

Volcker says the failure of Congress to establish even temporary estate tax exemptions levels and tax rates for 2010–when the estate tax sunsets before reverting the pre-2001 estate tax regime in 2011–illustrates the federal government’s “dysfunction[ality].”

“It might make sense to not have an estate tax if that were the considered judgment of the Congress,” he said. “But I can’t understand how the Congress can simply leave this in limbo. It’s crazy.”

Volcker expressed irritation, too, with Congress’s long delay in confirming key administration nominees, including the nomination of the deputy undersecretary of the treasury; and with the failure of Congress to address the crisis facing the Social Security system.

The Social Security trust fund could be made financially stable by increasing the minimum retirement age, which is now 62, and by modifying benefit rate increases, Volcker said. Today, he noted, Social Security benefits are adjusted automatically each year to reflect changes in the Consumer Price Index.

Under one scenario, said Volcker, the index could be modified without adversely affecting benefit rate increases for retirees on lower incomes. Individuals with higher incomes also would enjoy rate increases tied to the CPI, but any initial rise would not be as great as under current law.

“This is doable,” Volcker said. “It’s not rocket science. We can have a financially stable Social Security system without changing the tax structure and without reducing benefits. A credible program would also help to address concerns about the nation’s long-term budgetary outlook.”