i would start with making Iron weapons E rank again, and only let it have very low might, say like 2 might or so on an Iron Sword. Then we get to Steel Sword (Rank D), and let it have much more might (say 8 might), while weighing down the user (using Con style weight calculations). then the Interim weapons of rank C and B would be much smaller upgrades (maybe even might downgrades to cover their different utility). something like 6 might for killing edge, or 7-8 might for Brave sword. Then Silver Weapons should be Rank A, and should have a large jump in damage again (say 14 might for sword), and should be rare (like sold only in a secret shop, if any shop).
A curve like this can also only work if weapon levels are somewhat difficult to obtain, and if silver weapons themselves are also somewhat rare. The idea should be that getting to A rank should only happen late game, and that the really strong weapons are valuable, and thus, the Silver weapons being overpowered doesn’t impact most of the game balance, and the devs can balance around when you would get these weapons, and approximately which characters could use them at specific chapters.
If you don’t like the overpowered silver weapons, i like the idea of defense penalties. for the ranged weapons, i don’t think much is necessary for bows, but magic should probably have low might for all spells compared to even swords (like fibulventr being like 11 might A rank or something). knives should also either lose a lot of debuff power, or lose pretty much all their damage.
this is all my thoughts, as someone who hasn’t really dug into the design element of Fire Emblem.