Could not restart on internal HD after booting from an external USB drive.

You may what to expose the two articles from Apple related to Startup Security Utility and Change Security Setting in below links

Change security settings on the startup disk of a Mac with Apple silicon - Apple Support (CA)

About Startup Security Utility on a Mac with the Apple T2 Security Chip - Apple Support

Erase your Mac and reset it to factory settings

Use Erase All Content and Settings to quickly and securely erase all settings, data, and apps, while maintaining the operating system currently installed.

Use Erase All Content and Settings

This feature requires macOS Monterey or later on a Mac with Apple silicon or a Mac with the Apple T2 Security Chip. Learn what to do if you can't use Erase All Content and Settings.

macOS Ventura or later

1. From the Apple menu  in the corner of your screen, choose System Settings.
2. Click General in the sidebar.
3. Click Transfer or Reset on the right.
4. Click Erase All Content and Settings. Don't see this button?

macOS Monterey

1. From the Apple menu  in the corner of your screen, choose System Preferences.
2. From the System Preferences menu in the menu bar, choose Erase All Content and Settings. Don't see this option?

An erase assistant then opens. Follow the onscreen instructions to erase your Mac and restore it to factory settings. Before the erase begins, you will see a summary of all the settings, media, data, and other items that will be erased or turned off. 

• When asked to sign in with your administrator credentials, enter the password that you use to log in to your Mac. Forgot your login password?
• You might be asked to enter your Apple ID password so that your Mac can sign out of Find My. Forgot your Apple ID password?
• You might be asked if you want to back up your Mac before resetting it. If you want to do that, you can open Time Machine and back up to an external storage device. 
• Finally, you will be asked to click Erase All Content & Settings to confirm that you want to proceed.

Your Mac then restarts and briefly shows a black screen or progress bar.

• If your Mac needs to reconnect to a Bluetooth accessory such as a keyboard or mouse, you might be asked to turn on the accessory. If the accessory doesn't connect within 30 seconds, turn the accessory off and back on. When reconnecting to a Bluetooth keyboard, you're asked to choose a language.
• You might be asked to select a Wi-Fi network or attach a network cable. To select a Wi-Fi network, use the Wi-Fi menu  in the upper-right corner of the screen.

Your Mac then activates. Click Restart.

After your Mac restarts, a setup assistant guides you through the setup process, as if you're setting up your Mac for the first time.

If you're selling, giving away, or trading-in your Mac and want to leave it in an out-of-box state, don't use the setup assistant or your previously connected Bluetooth devices, if any. Just press and hold the power button on your Mac until it turns off.

If you can't use Erase All Content and Settings

Erase All Content and Settings is available only in macOS Monterey or later, and only on a Mac with Apple silicon or a Mac with the Apple T2 Security Chip. If this feature isn't available or doesn't work on your Mac:

• To both erase your Mac and reset it to factory settings, follow the steps in what to do before you sell, give away, or trade in your Mac, but disregard the instructions for using Erase All Content and Settings.
• To only erase your Mac without resetting it to factory settings, learn how to erase a Mac with Apple silicon or erase an Intel-based Mac. 
• When using Erase All Content and Settings, if you see a message explaining that other volumes need to be erased before you can erase all content and settings, you might have used Boot Camp to install Microsoft Windows. In that case, use Boot Camp to remove Windows and its partition.

jrmyeh wrote:

Thanks Sandra-Leigh.

The reason this behavior concerns me is that I was planning on a hard drive format / fresh install situation....but now I wonder if the computer will let me back in once I format the drive (booting through USB installer). Since I find its behavior a little counter intuitive.....

User wrote " I'm doing this on a 2021 16" MBP (M1 Max chip). "

There is the right way to format an Apple Silicon Computer drive which is very very different from the Intel Based method.

Erase your Mac and reset it to factory settings

Doing the Intel Method and Booting from an External Bootable Installer drive and Formatting like in the good old days of Intel Computer - sorry to report will Brick the machine

Then, to get the make possible up and running again may require this method

Revive or restore a Mac with Apple silicon using Apple Configurator

2. Press and hold the power button until “Loading startup options” appears.
3. Click Options, then click Continue.

Except when the OP tries, the screen goes black after the Loading startup options. Discussions about what the user could do in those utilities assumes that those utilities can be reached, but they cannot be (at least not without putting back the external drive.)

Sounds like I very nearly had the same problem recently -- I was booting from an external USB, was trying to figure out how to get it to boot back from internal drive and was having trouble getting the security manager to accept my password. I was about to disconnect the external drive assuming that would boot from the internal drive, but fortunately at the last moment I noticed a menu item to change the boot drive.

Welcome

The Erase all Content and Setting will Not Touch the Operating System itself.

That will remain Untouched

Think of like doing a Reset ALL on an iPhone / iPad

The Under Lying operating system will not be changed or removed

The lines between iOS and macOS in this specific case are about the same

Effectively after doing the Erase ALL Content and Setting does give the user an Out of the Box experience

Doing the Old Intel Method of booting from a Bootable Installer Drive and then Erasing the Whole Drive will Brick the machine

I have personally use the Instructions above on 2 M1 machines Before I Traded in Both for the M2 Versions

It just worked as per those Specific Instructions.

The difference was once the Final Boot was done, I held the Power Button until the computer when OFF

Otherwise I would have to Setup the Computer under my Apple ID which is Not what is Required on a Trade IN