"This million dollars can be lent out to another person as a mortgage"

It can't. It isn't. And it never has been.

What banks do is provide liquidity against your collateral. You sell them a charge over your house (for example), and they give you a credit for it. That credit can then be passed on to other people.

Banks are in the business of discounting. They don't take anything in and give it out to other people. [0]

[0]: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...